Directors’ Duties: Supreme Court Clarifies Section 172 of the Companies Act 2006

What does Section 172 of the Companies Act 2006 require directors to do?

The Supreme Court has provided important clarification on Section 172 of the Companies Act 2006, confirming that directors cannot rely solely on their own belief that they acted in the company’s best interests. Even where a director genuinely believes they are promoting the company’s success, they must still act loyally, transparently and in good faith towards the board and the company.

The judgment in Saxon Woods Investments Ltd v Costa _{[2026] UKSC21} is a significant reminder that directors must participate in collective board decision-making and cannot pursue a strategy that undermines other directors.

What is Section 172 of the Companies Act 2006?

Section 172 places a fundamental duty on company directors:

“A director of a company must act in the way they consider, in good faith, would be most likely to promote the success of the company.”

This duty is one of the core fiduciary obligations owed by directors and requires them to exercise honest business judgment while acting loyally towards the company.

At our recent Litigation Lessons webinar, we discussed how directors’ duties require both good faith and loyalty. The Supreme Court’s decision provides further guidance on how those principles should be applied in practice.

The Saxon Woods Investments case

The dispute arose from Saxon Woods Investments Ltd’s minority shareholding in Springfield Media Investments Ltd.

Under a shareholders’ agreement, the company was expected to pursue a sale by the end of 2019. The chairman, Mr Costa, believed delaying the sale would achieve a better financial outcome.

However, he pursued that strategy without the board’s knowledge, withheld important information and misled his fellow directors. The sale was delayed until the COVID-19 pandemic adversely affected the business.

Following litigation under Section 994 of the Companies Act 2006 for unfair prejudice, the case eventually reached the Supreme Court, which clarified how Section 172 should be interpreted.

What did the Supreme Court decide?

The Court’s decision establishes three important principles for company directors.

1. Section 172 is not purely subjective

The Court confirmed that Section 172 involves both a subjective and an objective assessment.

A director’s genuine belief that they are acting in the company’s best interests is relevant, but it is not enough on its own.

The Court will also examine whether the director’s actions were consistent with their fiduciary duty of loyalty.

This means directors cannot justify withholding information or misleading colleagues simply because they believed their strategy would ultimately benefit the company.

2. Directors must act collectively as a board

The judgment reinforces that boards govern companies collectively.

Where a director disagrees with the board’s direction, they should:

• participate in board discussions,
• challenge decisions openly, and
• follow proper governance procedures.

They should not pursue a covert strategy that undermines collective decision-making.

In Mr Costa’s case, the Court concluded that his conduct breached the duty of loyalty because he deliberately concealed information from fellow directors, even though he believed his approach would produce a better outcome.

3. Breach of contract remains an open question

The Supreme Court did not decide whether Mr Costa’s actions caused the company to breach its shareholders’ agreement.

Instead, the Court recognised that circumstances may change after a contract is entered into, meaning directors may sometimes need to reconsider earlier decisions.

What does this mean for company directors?

The judgment has practical implications for directors of private companies, owner-managed businesses and corporate boards.

Directors should ensure they:

• act openly with fellow board members,
• share relevant information before decisions are made,
• avoid pursuing undisclosed personal strategies,
• document board discussions and decisions, and
• remember that loyalty to the company includes respecting collective governance.

Key takeaways from the Saxon Woods judgment

The Supreme Court has confirmed that:

• Section 172 is not solely about what a director believes — their conduct matters too.
• Good faith alone is insufficient if actions undermine the board.
• Collective board governance is essential, even where directors disagree.
• Fiduciary loyalty remains central when courts assess directors’ duties.

For businesses, this decision is an important reminder that effective governance depends on transparency, accountability and proper board decision-making.

Need advice on directors’ duties?

If you have questions about Section 172 of the Companies Act 2006, directors’ duties or shareholder disputes, Graham Mead, Partner in Prettys Solicitors’ Commercial Litigation team, can help.

You can also find out more about our Dispute Resolution services.