Alex Chesterman, the founder of Cazoo, will have his shareholding in the company almost wiped out as bondholders take control of the loss-making online car seller.
Cazoo bondholders have agreed to swap the debt they own for shares in the company, swamping existing shareholders who will own just 8pc of the online used car dealer after the transaction.
The dilution will shrink Mr Chesterman’s existing holding from 24pc to less than 2pc.
Holders of $630m (£503m) of Cazoo debt will receive $200m of new bonds and shares “which will represent 92pc” of stock in the company, the company said in a market statement.
The unfavourable deal comes as the struggling company seeks to cut its debts and improve performance. Borrowing stood at £649m at the end of last year.
The move will require shareholders to agree to the deal at a meeting to be held on Tuesday.
Stockholders have already suffered a slide of more than 99pc in the value of Cazoo since it went public on the New York Stock Exchange in 2021.
Mr Chesterman, who previously founded LoveFilm and Zoopla, set up the online car dealership Cazoo in 2018 and grew it rapidly before a stock market listing via a special purpose acquisition company (SPAC).
However, the loss-making business has found itself under intense pressure as interest rates have risen and amid growing competition from rivals who have copied its online sales model.
Last year, Cazoo announced 750 job cuts and a hasty retreat from the new car leasing business.
The company has sold out of its Italian and Spanish businesses and wound down its French and German operations, extinguishing a grand plan to dominate online European second-hand car sales.
Mr Chesterman stepped down as chief executive in January, staying on as executive chairman.
New chief executive Paul Whitehead has been seeking to reduce the company’s cash burn in a race to improve performance. In an October update, Cazoo revealed the firm had £151m in cash, compared to £195m three months earlier, and would end the year with as little as £100m.
Cazoo has warned that the New York Stock Exchange has threatened to delist the company if its share price does not improve.
Rules dictate that a company must maintain a stock price of at least $1. Cazoo currently trades at 35 cents per share.
The company is currently valued at $14m. When it listed in the US in 2021, Cazoo raised $1bn to value it at $8bn.