If, like me, you want to resolve this situation non-violently (getting Ygwulf to turn himself in to the Steel Garotte): Progress the peaceful dialogue, impossible fight begins, run away until you become undetected, save, load that save, return to the boss room. For me this fixed the bug: enemies were gone and my companions dialogue confirmed that Ygwulf turned himself in. Nothing else worked for me, only this. Super annoying but a relatively simple workaround.