By Simon Walton, Partner, Davis Woolfe

A recent High Court decision involving the founder of Big Motoring World and private equity investor Freshstream provides a fascinating and important reminder of the protections available to shareholders when those in control of a company misuse their powers.

Most of the media coverage has focused on the allegations made against the founder, Peter Waddell. However, from a company law perspective, the more interesting aspect of the case is the court’s decision to uphold an unfair prejudice petition brought by his holding company.

As someone who has spent many years advising shareholders, directors and business owners in unfair prejudice disputes, I regard this as a particularly valuable example of how the courts will look beyond the formal exercise of legal powers and scrutinise the purpose for which those powers are used.

The essence of an unfair prejudice claim

Many business owners assume that if a shareholder agreement, investment agreement or articles of association grant certain powers, those powers can be exercised freely.

The law is not that simple.

The unfair prejudice jurisdiction exists to protect shareholders where the affairs of a company are being conducted in a manner that is unfairly prejudicial to their interests. Frequently, the cases involve majority shareholders excluding founders from management, diverting value away from minority shareholders or using corporate powers for an improper purpose.

The court is often concerned as much with how decisions were made as what decisions were ultimately reached.

What happened in this case?

The judgment records that Freshstream acquired a minority stake in the business in 2022 as part of an investment that valued the company at approximately £200 million. It also obtained various contractual protections, including rights that could be exercised if certain financial targets were missed.

Following a deterioration in relations and a period of underperformance, the investor exercised its step-in rights, launched an investigation into Peter Waddell’s conduct and suspended him. He was subsequently removed from the board and deprived of voting rights.

However, the court concluded that the investor had effectively adopted a pre-conceived strategy to remove him and obtain control of the business without exercising an option that would otherwise have required it to purchase a further 35% stake for at least £72 million.

Judge Smith found that the misconduct investigation was not conducted impartially but was designed to achieve a predetermined outcome, namely removal. He further concluded that the misconduct relied upon to remove Peter Waddell’s board and voting rights was invalid. The unfair prejudice petition therefore succeeded.

Why the decision matters

For me, the most significant lesson is that the court was prepared to separate two issues that are often conflated.

The judge accepted that there were grounds upon which Peter Waddell could properly have been dismissed as an employee. Yet that did not justify the way in which the investor exercised its powers as a shareholder and controller of the company.

That distinction is critical.

Shareholder disputes are rarely decided solely by reference to technical rights found in corporate documents. The courts will examine the reality of what occurred and whether powers were exercised in good faith and for their proper purpose.

A majority shareholder cannot simply point to a contractual provision and assume that is the end of the matter.

Lessons for founders, investors and shareholders

This case serves as a reminder that:

• Corporate powers must be exercised for proper purposes, not as part of a predetermined strategy to remove a shareholder.
• Directors appointed by investors continue to owe duties to the company, not merely to the investor who appointed them.
• Courts will carefully scrutinise attempts to strip founders or minority shareholders of management and voting rights.
• Unfair prejudice petitions remain one of the most powerful remedies available to shareholders who have been excluded, marginalised or treated unfairly.

For business owners, founders and investors alike, the judgment is a useful reminder that commercial relationships can quickly unravel when interests diverge. When they do, understanding the limits of shareholder power becomes just as important as understanding the rights themselves.

At Davis Woolfe, we regularly act for majority shareholders, minority shareholders, founders and investors in complex unfair prejudice petitions, shareholder disputes and company ownership conflicts. Cases such as this demonstrate why strategic advice at an early stage can often make the difference between preserving value and becoming embroiled in years of costly litigation.