Directors' duties: Lessons from Saxon Woods v Costa

The Supreme Court's judgment in Saxon Woods Investments Limited and others v Francesco Costa [2026] UKSC 21 confirms that the statutory duty to promote the success of the company requires good faith in a director's conduct as well as in their thoughts, aims and motives.

A director who fails to raise a dissenting view openly with the board and instead pursues that view by covert means is in breach of this duty, regardless of whether they genuinely believed they were acting in the company's best interests.

The judgment has practical implications across a range of corporate situations.  It is of particular relevance to directors in distressed companies and to insolvency officeholders investigating pre-appointment conduct.

What happened?

Spring Media Investments Limited was a holding company in the fashion and luxury brand sector. Its shareholders' agreement required the parties to work towards a sale of the company by 31 December 2019. The board delegated conduct of that sale exclusively to its chair, Francesco Costa. Mr Costa believed a later sale would produce a better return and covertly pursued tactics to delay the exit beyond 2019, contrary to exit strategy set out in the shareholders' agreement and adopted by the board. The Covid-19 pandemic then destroyed the prospect of any beneficial exit.

A minority shareholder, Saxon Woods, presented an unfair prejudice petition seeking an order that Mr Costa buy out its shares at their 2019 value. The High Court found unfair prejudice but no breach of the director's duties, accepting that Mr Costa sincerely believed he was acting in the company's best interests. The Court of Appeal disagreed. The Supreme Court unanimously dismissed Mr Costa's further appeal.

What does the Companies Act 2006 say?

Section 171 requires a director to act in accordance with the company's constitution and to exercise powers only for the purposes for which they are conferred. Where the board delegates a specific task to a director, that authority must be used consistently with the instructions under which it was given.

Section 172 requires a director to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.  The s.172 duty is a fiduciary duty that pre-dates the 2006 Act. It is often referred to as the "duty of loyalty".  

The s.172 duty is modified where a company is insolvent or nearing insolvency. In these circumstances the directors must take creditors' interests into account.  The Supreme Court has previously confirmed that the weight given to creditor interests increases on a sliding scale that correlates with the company's level of financial distress and the corresponding need to place the company into administration or insolvent liquidation.

What does this mean?

The Supreme Court held that the good faith requirement in section 172 applies to a director's conduct, not merely their thought process. A genuine belief that a preferred strategy is correct does not permit a director to pursue it covertly or in defiance of the board.  The absence of an express and separate statutory prohibition on covert subversion of the board is no answer to a claim of breach of fiduciary duty.

Where the board has resolved upon a strategy, an individual director must raise their alternative view openly with the board and must not pursue a contrary strategy by covert means. Using delegated authority to pursue an inconsistent strategy breaches both section 171 and section 172.

The Supreme Court also clarified that, while dishonesty might be evidence of a breach of the loyalty duty, it is not an essential ingredient.  The fundamental question is whether the director fulfilled or breached their duty of loyalty within the analytical framework set out in s.172, including acting in good faith.  Further elaboration centring on the issue of dishonesty was not necessary.

One point remains open: whether a contractual commitment to pursue a particular strategy (for example, in a shareholders' agreement) conclusively determines what section 172 requires.  Lord Briggs indicated that such a contractual commitment does not necessarily close off a director's analysis of whether a change of course might better serve the company.  He acknowledged that changed circumstances may require the directors, acting collectively as a board, to reconsider the course to which they had previously committed.  However, any such reconsideration must be a matter for the board collectively and should not be pursued by a single director acting covertly.  

What should you do now?

For directors, particularly in companies under financial pressure:

• Use delegated authority consistently with the instructions under which it was given. Departing from those instructions carries a real risk of personal liability.
• Raise disagreements with the board's strategy formally and on the record (which might include voting against proposals).
• Explain and document your reasons and any preferred alternative (which should be anchored in the loyalty duty) as well as the potential consequences of the board taking the decision to pursue a course with which you disagree.
• Do not act covertly and contrary to the board's decision.
• Take independent legal advice on the legal risks to you personally and your options if you are concerned that the board may be pursuing the wrong course.

The company should consider taking legal advice to guide the board's decision-making, including before departing from any existing shareholder agreement or other contractual obligations.

For insolvency officeholders:

• When bringing misfeasance claims against directors consider framing the case around the director's duty of loyalty rather than dishonesty.
• Consider whether the conduct also breaches section 171. A single course of conduct can give rise to multiple overlapping breaches.
• Examine how delegated authority was exercised and whether it was consistent with the board's instructions.

Looking ahead

Saxon Woods v Costa confirms that collective board governance is a legal requirement, not merely good practice.  Directors who engage openly with the board when they disagree are better placed if their conduct is later scrutinised. The judgment gives insolvency officeholders a clearer and broader basis on which to plead breach of duty claims, which is likely to be reflected in how such claims are argued going forward.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2026. Specific advice should be sought for specific cases. For more information see our terms & conditions.al