Saxon Woods Investments Limited v Costa [2026] UKSC 21: Good Faith in the Boardroom

The UK Supreme Court has unanimously dismissed the appeal of Mr Francesco Costa, former chairman of Spring Media Investments Limited, in the first Supreme Court judgment to consider the scope of the duty under section 172(1) of the Companies Act 2006. The foundational position is that good faith requires honest conduct as well as honest thinking. A director's genuine belief that they are acting in the company's best interests will not excuse covert or disloyal conduct in pursuit of that belief. 

Private equity investors, minority shareholders with exit rights, and multinational groups with UK-incorporated entities each face specific practical consequences that are examined below. In particular, by setting aside the requirement to establish dishonesty under the Ivey test in favour of a broader fiduciary loyalty framework, the Supreme Court has materially widened the range of director conduct that may ground a claim, including in the context of misfeasance proceedings brought by officeholders under the Insolvency Act 1986. Each of these implications is examined below. 

The Facts 

All company directors, irrespective of the size of the company, have a fiduciary duty under section 172 of the UK Companies Act 2006 to act in good faith to promote the success of the company for the benefit of its members as a whole. 

Spring Media Investments Limited provided creative services to fashion, beauty, and luxury brand clients. In 2016, its shareholders and the company entered into a shareholders' agreement requiring all parties to work together in good faith towards a sale of the company by no later than 31 December 2019. The board delegated the conduct of that sale process exclusively to Mr Costa as chairman. 

Mr Costa instead believed a delayed exit would generate a better return. Rather than raise this with the board, he covertly ensured that no other director had meaningful involvement in the sale process, misled the board into believing the company was fulfilling its obligations under the shareholders' agreement, and instructed advisers not to pursue a 2019 exit. The delay proved catastrophic: the Covid-19 pandemic destroyed the prospect of a profitable exit from 2020 onwards. 

Minority shareholder Saxon Woods, holding 22.33% of the shares, brought an unfair prejudice petition seeking a buy-out at the price its shares would have commanded had the agreed 2019 exit been achieved. The trial judge found unfair prejudice but held that Mr Costa had not breached section 172, since he subjectively believed he was acting in the company's best interests. A conditional buy-out order was made, requiring proof that a sale above US$75 million would have been achieved. The Court of Appeal reversed this and ordered an unconditional buy-out, finding dishonesty on the basis of the Ivey v Genting Casinos test. The Supreme Court unanimously upheld the unconditional buy-out, but on a broader and more significant basis. 

What the Supreme Court Decided 

Good faith is both subjective and objective. The duty to act in good faith under section 172(1) applies to the director's conduct in pursuit of their belief, not only to the belief itself. A director who is sincere in their view but pursues it through concealment, selective disclosure, or covert management of a delegated process acts in bad faith and is in breach of their fiduciary duty of loyalty. 

The Ivey dishonesty test has been set aside for fiduciaries. The Court of Appeal found a breach by applying the objective dishonesty test from Ivey. The Supreme Court took a broader approach: where a defendant owes a fiduciary duty of loyalty, the duty itself supplies the relevant analytical framework. Dishonesty may be evidence of a breach, but it is not required. A director cannot escape liability by arguing that their conduct, whilst covert, did not cross the threshold of dishonesty by the standards of ordinary decent people. 

A significant question remains open. Lord Briggs declined to decide whether a company's contractual commitment in a shareholders' agreement conclusively determines what section 172 requires. He indicated that a change of course, even one that involves a breach of contract, may be permissible if decided collectively and openly by the board in changed circumstances. The manner in which any deviation is reached, whether covert or collective and transparent, is the critical variable. This question will be central to the next generation of shareholders' agreement disputes. 

The remedy is powerful. Establishing the section 172 breach converted the conditional buy-out ordered at first instance into an unconditional one. The value of Saxon Woods' shares will be assessed at the pro-rata undiscounted value as at 31 December 2019, reflecting the company before it was affected by the pandemic. This removes the evidential burden on Saxon Woods to prove what would have happened in a counterfactual scenario, i.e., that a $75 million sale would have been achieved. Once a section 172 breach is established, causation arguments that might otherwise limit the remedy fall away, which is an attractive position for a claimant. 

Four Practical Implications 

1. For directors, be aware that the sincerity of belief defence is gone: A director who disagrees with the board's strategy must raise it openly. They may make their case and, if unsuccessful, accept the outcome or resign. What they cannot do is use delegated authority to implement a different strategy covertly, however genuinely they believe it is the right one. The personal financial consequences of doing so are severe: Mr Costa now faces a buy-out liability calculated at a historical value that may far exceed what the company is worth today.
   
   Directors operating under delegated authority in transactions, restructurings, or sale processes should ensure that they act within the scope of their mandate, report regularly to the board, and escalate promptly if they believe circumstances require a change of strategy. 
   
   
2. For private equity and growth investors, be aware of governance gaps in M&A delegation: The Saxon Woods fact pattern is structurally common in private equity with an investor-nominated chairman, a diverse shareholder register, a contractual exit obligation in a shareholders' agreement, and a single individual delegated to run the sale process. 
   
   Informal delegation, without a written mandate, defined reporting obligations, or escalation triggers, creates personal liability risk for the delegate and governance risk for the full board. Where the delegated director has a personal financial interest in the outcome, whether through direct shareholding or an indirect interest, the risk of a later allegation of improper use of authority is substantially heightened.
   
   The unresolved question on shareholders' agreements adds a further layer of complexity. If a board collectively decides, in changed circumstances, to depart from an agreed exit timeline, it may avoid a section 172 finding. But the manner of that decision matters enormously: it must be taken openly, collectively, and with documented reasoning. Even if these steps are followed, there is no guarantee it will not be challenged in court pursuant to section 172. Until there is a case which resolves this question, the risk of litigation remains real for any party subject to a contractual exit obligation who, collectively, departs from the original course of action.
   
   
3. For minority shareholders, you now have a stronger toolkit: The judgment materially improves the position of minority shareholders in exit disputes. A claimant need not prove dishonesty in the Ivey sense. Conduct that is objectively disloyal, including concealment or covert management of a delegated process, suffices to establish a breach of section 172. Once that breach is established, the court is not constrained by strict causation: the unconditional buy-out ordered here reflected not only the unfair prejudice but also the director's fiduciary breach, without requiring proof of what would have happened but for the breach.
   
   The buy-out is assessed at full undiscounted value at a pre-prejudice date. For a minority shareholder whose investment has subsequently been impaired by a director's conduct, this is a significantly more valuable remedy than a damages claim assessed at current value. Early legal advice is important: the remedy available may be considerably more generous than an initial assessment of the company's current position would suggest. But, where an unconditional buy-out is ordered, that is reliant on the director being able to afford to buy the shareholder’s stake at the full undiscounted value. If the director cannot pay, the shareholders would face the same challenges as a judgment creditor.
   
   
4. For multinational groups, be aware that UK subsidiary governance is a legal obligation: The Companies Act 2006 applies in full to all directors of companies incorporated in England and Wales, regardless of their nationality, residence, or where the group parent is based. Directors of UK subsidiaries who take strategic direction from a group parent without proper engagement at UK board level face the same personal exposure as Mr Costa.
   
   This is particularly relevant where a UK subsidiary is party to a shareholders' agreement with exit or strategic obligations, as is routinely the case in joint ventures, private equity structures, and co-investment arrangements. UK subsidiary board governance should not be treated as an administrative formality.
   
   
5. For insolvency practitioners: a wider toolkit for pursuing directors: Saxon Woods materially strengthens the position of insolvency practitioners bringing misfeasance claims under section 212 of the Insolvency Act 1986. Previously, where alleged misconduct fell short of outright fraud, IPs often felt compelled to frame claims through the lens of Ivey dishonesty, with the evidential burden that entails. The Supreme Court's decision removes that requirement entirely. Where a director owes a fiduciary duty of loyalty, the question is simply whether that duty was breached by their conduct, assessed objectively. Covert pursuit of a personal strategy, keeping the board uninformed, using delegated authority for an improper purpose, or favouring connected parties over the company's interests are all fact patterns familiar to IPs in pre-appointment investigations and each may now more readily ground a section 172 claim without any need to establish dishonesty.
   
   IPs conducting pre-appointment investigations should reassess whether director conduct previously considered below the threshold for a viable misfeasance claim warrants a fresh look considering Saxon Woods. The judgment also confirms that a sincere belief in acting for the company's benefit is not a complete defence where the director's conduct was objectively disloyal. Pleading section 172 alongside sections 171 (which requires directors to act within their powers and only use their powers for the purposes for which they were conferred) and 174 (which requires directors to exercise reasonable care, skill and diligence) in the alternative further strengthens the claim. The lowered threshold is a material and immediate change to the toolkit available to officeholders. 

Key Takeaways 

Boards and directors: Audit all delegated authority for significant transactions to ensure written mandates exist with defined scope, reporting obligations, and escalation triggers. Review board minutes to ensure they record not only decisions but also the reasoning behind them. Any director with a personal financial interest in a transaction being managed at board level should take independent advice on disclosure obligations. 

Private equity and growth investors: Review shareholders' agreements and investment documents to assess whether exit obligations are supported by adequate governance provisions. Investor-nominated directors should be briefed on the personal nature of their section 172 duties, which run to the company as a whole, not to the nominating investor. 

Minority shareholders: Where there are grounds to believe a director is pursuing a strategy that diverges covertly from the agreed board position, the Saxon Woods framework provides a basis for a section 172 claim combined with an unfair prejudice petition, with the potential for an unconditional buy-out at full undiscounted historical value. 

In-house legal teams in multinational groups: Conduct an audit of UK-incorporated subsidiary governance arrangements to confirm that directors are aware of their personal duties under English law and that significant strategic decisions are properly considered and documented at UK board level. 

Conclusion  

Saxon Woods v Costa confirms that good faith in the boardroom is not simply a question of motive. It requires objectively loyal conduct. The judgment lowers the bar for claimants, removes a key defence for directors, strengthens the position of minority shareholders in exit disputes, and leaves open significant questions about the relationship between shareholders' agreements and directors' duties. Reviewing governance structures and documentation now is considerably less costly than addressing these issues once a dispute has arisen. 

This alert has been prepared for informational purposes only and does not constitute legal advice. If you would like to discuss any aspect of the matters raised, please contact RWeekes@crowell.com or ENorthcott@crowell.com.