An unfair prejudice petition under section 994 of the Companies Act 2006 has succeeded against a private equity investor whose contractual rights were themselves valid. In Peter Waddell HoldCo Ltd v Bluebell Cars Holding Ltd [2026] EWHC 2028 (Ch), handed down on 31 July 2026, Marcus Smith J found the process used to remove a founder’s board representation and attenuate his voting rights was unfairly prejudicial. It is a split result.
What did the court decide?
The judgment was handed down in the Insolvency and Companies List of the Business and Property Courts and determines two sets of proceedings together: a section 994 petition brought by the founder’s corporate vehicle, and a CPR Part 7 claim including a wrongful dismissal claim. Employment tribunal proceedings were stayed and are not addressed.
The petition succeeded. The judge found that the investor had accumulated allegations of misconduct before deploying them, and that the exercise carried out in March 2024 followed a predetermined plan. Part IV(x) of the judgment is headed “A foregone conclusion?” and begins at paragraph 1091, which gives a fair indication of where the analysis lands.
Alongside that, the wrongful dismissal claim failed, because some of the conduct relied on did amount to gross misconduct. The first of the two step-in notices was valid, and no declaration was made that the step-in notices were unlawful. Anyone reading a summary that describes this as a clean win for the founder is reading a summary rather than the judgment.
The contractual architecture
The structure will be familiar to anyone who has papered a minority private equity investment in a founder-controlled business. The investor took a minority stake in a company valued at around £200m, and mitigated the absence of control through two mechanisms recorded in a Securityholders’ Deed and a Call Option Deed.
The first was a call option to acquire a further 35 per cent and with it majority control, exercisable once, in respect of all the option shares, at a floor price of £72m. The second was a bundle of minority rights, of which two matter here. Step-in rights arose on a trigger event, defined by reference to financial performance over a period, and were exercised by serving a step-in rights exercise notice, which reversed the founder’s automatic board majority and gave the investor effective control of the board.
The third mechanism is the one that did the damage. Clause 19 of the Securityholders’ Deed provided for material default events, defined as a breach of discrimination, harassment or anti-bribery law by an employee that was reasonably likely to have a material adverse effect on reputation. Where the investor had reasonable grounds to suspect one, it could require the company to commission an investigation by a suitably qualified independent third party. If that investigation found on the balance of probabilities that a material default event had occurred, the investor could serve an MDE notice, and in the founder’s case the consequence was removal of his appointed directors and attenuation or extinction of voting rights.
All three rights were exercised on the same day, 7 March 2024, without prior warning, alongside suspension under the founder’s service agreement. That the events were coordinated was common ground. How they came to be coordinated was the trial.
Why was the MDE process invalid?
The judgment treats the MDE investigation notice and the subsequent MDE notice as invalid, with the consequence that the exercise of MDE rights was unlawful. Validity of the investigation notice is analysed from paragraph 1150; the challenge to the MDE notice itself, on the twin grounds that there was no relevant “finding” and that it was made in bad faith, runs from paragraph 1283.
Two features of the analysis are worth carrying away. The judge held that a duty of good faith applied to the conduct of the independent investigation, addressed at paragraphs 1165 to 1167, and separately examined the composition of the investigation committee at paragraphs 1170 to 1183, including the appointment of its chair. A contractual mechanism that requires independence is not satisfied by a body constituted so as to reach a particular answer.
There is also a documentary point that will resonate with anyone who has run a contractual investigation. The judgment sets out, incident by incident, whether each allegation relied on in the dismissal letter could be identified in the annex to the investor’s own resolution. In a substantial number of instances it could not, the judge recording that the allegations as framed were too vague to be linked to a specific incident.
A valid right, exercised unfairly
The section 994 analysis begins at paragraph 1327 and separates questions that are often run together. The affairs of the company, the rights subsisting for the investor’s benefit and the requirement that the prejudice be to the petitioner company rather than to the individual founder are each addressed in turn, the last at paragraph 1333.
That last point deserves emphasis. The petitioner was the founder’s holding company, and the judgment is careful about when it is necessary to distinguish between the two. A petition brought in the wrong name does not become a better petition because the individual behind it has been badly treated.
Investment agreements in private equity backed companies routinely contain step-in, leaver and material default rights. This judgment says the validity of the mechanism and the fairness of its exercise are separate questions, and that an investigation run to reach a predetermined outcome can convert a contractual entitlement into unfair prejudice. It also confirms that a founder can lose the employment claim and still win the petition.
What happened to the wrongful dismissal claim?
It failed. The dismissal letter of 16 April 2024 relied on 31 alleged incidents, each said to be capable individually and collectively of justifying summary dismissal, and the judge found that some of the conduct did amount to gross misconduct. The judgment carries a warning at its head that the language recorded in it has not been redacted, and the detail is not repeated here.
The wrongful dismissal analysis at paragraphs 1308 onwards includes the rule in Boston Deep Sea Fishing, under which a dismissal for a bad or absent reason can be justified by repudiatory breaches discovered later. Two directors were separately found to have breached their duties in relation to the MDE process and the disciplinary hearing.
What does the judgment add?
The proposition that unfairly prejudicial conduct can consist of the manner in which an entitlement is used, rather than the absence of the entitlement, is not new. What this case supplies is a worked example at length, in a structure that deal lawyers actually draft, and with the internal investigation squarely inside the section 994 analysis rather than treated as an employment side-issue.
For anyone drafting a material default clause, the practical lesson is about specificity and constitution. The allegations that founded the investigation notice were, in the judge’s assessment, too vaguely framed in a number of instances to be tied to what was later relied on, and the committee that appointed the investigator was scrutinised on who sat on it.
What happens next?
Remedy was not determined and may require a further trial. No conspiracy claim was formally determined, and none had been pleaded as such. The proceedings remain live, and an appeal is possible.
The judgment sits in the Insolvency and Companies List, which from 1 October 2026 falls within the Business and Property Division following the retirement of the Chancery Division. For a recent illustration of how the same courts approach interlocutory applications in commercial disputes, see our note on pre-action disclosure under CPR 31.16.
The judgment page and the approved judgment are on the judiciary website.