Claim No: CR-2024-004856 - [2025] EWHC 2304 (Ch)

DOES KOZA ALTIN HAVE NO CONTROL?

The position up to the hearing

Up to the first day of this hearing, Koza Altin had an extremely strong argument that it is not in control of the Company. Clearly, unless and until the 2016 Proceedings are determined in its favour, it has, and can obtain, no control at board level. Mr Ipek remains the sole director and cannot be removed.

Only in theory, was this point mitigated by Koza Altin’s ability to give directions under Article 4. Mr Ipek has in the past, and was reserving a right in the future, to challenge the ability of the current directors of Koza Altin to pass such a resolution, with the result that Mr Ipek was reserving a right to ignore any resolution that Koza Altin (whilst it remained under its current control) might pass, including any resolution under Article 4. Accordingly Koza Altin was on notice that any control that Koza Altin might have through passing a resolution under Article 4 (or otherwise) potentially might require another visit to court.

In view of Mr Ipek’s change of position, as discussed below, I do not need to determine this point, however, I will say that before this change of position I consider that the argument that there was a deadlock was a strong one. Whilst in theory a deadlock on any matter (other than changes impinging on Article 26) could be resolved by a direction under Article 4, Koza Altin was effectively on notice that Mr Ipek considered himself free to ignore any such direction if it was passed by the existing directors of Koza Altin.

Mr Ipek’s counsel, noting that Koza Altin’s case is based in principle on the assertion that there is a “deadlock”, pour doubt on whether the circumstances really can be said to amount to “deadlock” as the courts have interpreted that phrase in the past. Referring to Chu at [14], they note that a winding-up may be just and equitable where there is a “functional deadlock”, meaning “an inability of members to co-operate in the management of the company’s affairs” that leads to “an inability of the company to function at board or shareholder level” or otherwise being described in Chu as being of a “paralysing kind”. They argue further (on the basis of Chu at [23]) that the paralysis must affect management; deadlock about “other matters is neither here nor there” if the company is “still capable of being effectively managed” and decisions can still be made “about important aspects of the direction of its business and assets”.

This last point appears to be at odds with a case cited by Koza Altin’s counsel (and described as the leading case in Ebrahami): Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 (“Re Yenidje Tobacco”). This was a quasi-partnership case where two tobacconists brought their businesses together to be conducted through a private limited company, with articles that provided for deadlock between its two shareholders both shareholder and director level, and with the unusual provision that if there was deadlock at director level, the matter would go to arbitration and the arbitrators’ decision would stand as a decision of the directors. Some points went to arbitration in this manner, and the two directors were not speaking to one another. Nevertheless, it appeared that the company remained prosperous, making large profits - in fact rather larger profits than before the dispute became so acute. Nevertheless the court found that it was:

“… contrary to the good faith and essence of the agreement between the parties that the state of things which we find here should be allowed to continue.”

Mr Caplan, for Koza Altin, asks me to take two points from this case:

Interestingly, Lord Cross in Ebrahami (at page 383) found that the decision in Re Yenidje Tobacco was not made on the ground of “deadlock”, finding that:

“It is sometimes said that the order in that case was made on the ground of " deadlock." That is not so. … although Mr. Rothman and Mr. Weinberg were not on speaking terms they communicated through third parties, the company's business was flourishing and the articles contained a provision for arbitration to which resort could be had in the event of their failing to agree on any point. The reason why the petitioner succeeded was that the court thought it right to make the order which it would have made had Mr. Rothman and Mr. Weinberg been carrying on business under articles of partnership which contained no provision for dissolution at the instance of either of them. People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated then the relationship should be ended—unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen.”

A narrow reading of this passage would suggest that Lord Cross considered that the ratio of Re Yenidje Tobacco was that it was a quasi-partnership case where it was appropriate to provide a remedy equivalent to the ability of a partner to terminate partnership where he has lost confidence in the other partner.

However, a more expansive reading, which I think accords better with the authorities which demonstrate that the court’s approach not to limit just and equitable winding up to particular silos, is that Re Yenidje Tobacco shows that equity will in appropriate cases provide a remedy in cases where an insupportable position has arisen (otherwise than as a result of the responsibility of the party who wishes the company to be wound up) and there is no other ability to resolve the position.

Mr Ipek’s counsel, Mr James Sheehan KC, also referred me to the following passage in the judgment of Lord Shaw of Dunfermline in Loch v John Blackwood Limited [1924] AC 783 at 788, where he said:

“It is undoubtedly true that the foundation of applications for winding up, on the "just and equitable" rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up.”

Mr Sheehan suggests that I should take from this that it is necessary, in a case establishing a loss of trust and confidence outside a quasi-partnership company, to find that this arises from a lack of probity.

He notes that this passage has been cited with approval in Ebrahimi by Lord Wilberforce at page 376, but I note, on reviewing this reference, that Lord Wilberforce was approving this as an example of how deadlock is not the only reason why it would be just and equitable to wind up the company, rather than specifically endorsing a view that a lack of probity is needed in cases outside a quasi-partnership company.

Mr Sheehan also referred me to the reference made to this case by Lord Cross in Ebrahami at page 383, but Lord Cross in the same passage was at pains to point out that:

“ … it is not a condition precedent to the making of an order under the subsection that the conduct of those who oppose its making should have been unjust or inequitable”

Finally on this point, Mr Sheehan referred me to Lord Briggs’ judgment in Chu at page 4666 which did quote this passage with approval, noting that:

“That was neither a deadlock nor a quasi-partnership case. The winding up was sought (successfully) on the ground that the minority shareholder petitioner had lost confidence in the probity of the directors.”

An interesting aspect of the case that is before me today is the question of how far the line of jurisprudence relating to quasi-partnerships should be applied to a different type of deadlock that does not arise in anything that is recognisable as a quasi-partnership. After all Lord Wilberforce, in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (“Ebrahami”) at page 360, based his reasoning as to how the words “just and equitable” should be interpreted on the point that:

“the words are a recognition of the fact that a limited company is more than a legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights expectations and obligations into say that are not necessarily submerged in the company structure.”

The expectations and obligations of individuals involved in a company are much easier to identify in a quasi-partnership case. It is therefore right to be cautious about applying decisions that applied in quasi-partnership decisions to other circumstances, especially in view of what Lord Wilberforce went on to say:

“The “just and equitable” provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of any personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.”

Mr Ipek’s counsel suggest on the basis of this passage and also of Re Anglo-Continental Produce Co Ltd [1939] 1 All ER 99 at 103F (“Anglo-Continental Produce”) that the fact that the company’s articles give a director the power to overrule the views of the majority of shareholders does not provide a basis for winding-up, regardless of what friction may exist between them.

In my view, this is putting the case too strongly. First I note that Anglo-Continental Produce was decided many years before Ebrahami, and the approach that it appears to follow on page 103 is the approach discredited in Ebrahami and later cases (see the references cited at my paragraph [‎73] above) of trying to confine the notion of “just and equitable” to specific types of case. (In Anglo-Continental Produce the relevant categories of case were considered to be: a wrong done to the company and voting power being used to prevent the company from having a remedy; failure of the substratum of the company; and impossibility for the business to be carried on because of the way the voting power is held and the feelings of the directors towards one another (a reference, I think, to Re Yenidje Tobacco).)

Nevertheless, where, as in the present case, the circumstances are outside the circumstances of quasi-partnership or any of the established type of circumstance where just and equitable winding-up has been found to be appropriate, it will be necessary to go back to the equitable principles mentioned by Lord Wilberforce in order to reach a resolution.

In my view, the position as it stood immediately before this hearing, is an entirely unusual one where there is no deadlock at shareholder level (Koza Altin holds all the votes) and no deadlock at board level (Mr Ipek is the sole board member) but the combination of the facts that these parties are at loggerheads; that the shareholder with all the economic rights has lost confidence that the sole director is managing the assets in its interests; that that director cannot be removed; and that that director reserves a right to ignore any directions under Article 4 (which might otherwise resolve the impasse), does appear to me to be worthy of the name of deadlock.

In my view, although this is not a quasi-partnership case, there are many parallels with the analysis that Lord Cross found to be the justification for the decision in Re Yenidje Tobacco, as I have cited at [‎124] above. Shareholders are entitled to have confidence in the directors who are entrusted with the management of their assets. This confidence has clearly broken down in this case, and there are examples where the court has already determined that Mr Ipek was not acting in the interests of the Company, for example in funding litigation for his own benefit out of the assets of the Company or paying himself excessive remuneration as director. It cannot be said that this breakdown in trust has arisen entirely as a result of actions by Koza Altin. Neither can it be said that Koza Altin’s complaint is entirely based on an objection to the Company’s unusual constitutional arrangements – it is based not merely on that fact, but also on the way that he has used that position against the interests of the Company, as perceived by its economic owner.

There is a close parallel between the position here (loss of trust in a director coupled with an inability to fire the director) and the position Lord Cross considered to be relevant in Re Yenidje Tobacco (a loss of trust between quasi-partners without the usual ability to terminate the relationship afforded to partners). In my view the equitable considerations that pointed towards a just and equitable winding-up in Yenidje Tobacco, while Mr Ipek was in effect reserving the right generally to ignore a direction given by means of a resolution under Article 4, pointed similarly towards resolving what I agree had become an insupportable position here.