Saxon Woods v Costa [2026] UKSC 21: What Former Directors Need to Know When Facing Claims by Insolvency Practitioners

The judgment is likely to be relied upon by insolvency practitioners pursuing claims against former directors of insolvent companies. 

Background 

The dispute arose from the affairs of Spring Media Investments Limited. The claimant shareholders alleged that Mr Costa, the company's chairman and a substantial indirect investor, had frustrated an agreed process for the sale of the business and brought an unfair prejudice petition under sections 994–996 of the Companies Act 2006. Mr Costa maintained that he believed delaying the sale would ultimately generate greater value for the company and its shareholders. 

The central legal question was whether section 172 of the Companies Act 2006 is satisfied merely because a director honestly believes they are acting in the company's interests, or whether the court must also consider if the director's conduct was objectively honest and consistent with their fiduciary obligations. 

The Supreme Court unanimously upheld the Court of Appeal's approach and clarified the relationship between sections 171 and 172. 

The Supreme Court's Key Principles 

1. Section 172 is not a purely subjective test 

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. 

Prior to this case, many directors relied on the proposition that a genuine subjective belief was sufficient. The Supreme Court rejected that approach. It confirmed that a director cannot avoid liability simply by asserting that they honestly thought they were acting in the company's best interests. The court must also examine whether the director's conduct was compatible with the standards of honesty expected of a fiduciary. 

The Court emphasised that "good faith" concerns not merely a director's internal belief but also how they exercise their powers and conduct themselves within the company's governance framework. In the present case, the court's decision was influenced by the fact that the director “​engaged in a covert single-handed campaign, concealed from his fellow directors, contrary to the collective view of the board that a different course should be followed​". 

2. A director cannot secretly frustrate a collective board decision 

A particularly important aspect of the judgment is the Court's treatment of directors who disagree with a board strategy. 

The Supreme Court accepted that directors are entitled to form independent views and challenge proposals. However, once the board has collectively adopted a strategy, a director cannot secretly undermine or obstruct it while simultaneously claiming to be acting for the company's benefit. 

The Court's guidance can be summarised as follows: 

• A director may disagree with colleagues. 

• A director may argue for a different course. 

• A director may seek to persuade the board to change direction. 

• A director may not covertly pursue a competing strategy through delegated powers or conceal material information from fellow directors. 

This aspect of the decision is likely to have significant implications in shareholder disputes, joint venture companies, family businesses and closely-held companies where disagreements between directors frequently arise. 

3. The link between sections 171 and 172

The Supreme Court also highlighted the ​​​interplay​ between section 171 and section 172. 

Section 171 requires directors to exercise powers: 

• in accordance with the company's constitution; and 

• only for the purposes for which those powers are conferred. 

The Court observed that where a director uses delegated authority to pursue a private agenda or a strategy that has not been authorised by the board, such conduct may constitute a breach of section 171 in addition to any breach of section 172. 

What does this mean for insolvency claims against former directors? 

In liquidation or administration, insolvency practitioners often investigate whether former directors breached their statutory and fiduciary duties. 

Claims commonly involve allegations that directors: 

• preferred their own interests over those of the company; 

• concealed information from fellow directors; 

• diverted opportunities; 

• failed to follow corporate governance procedures; 

• misused company assets; or 

• exercised powers for improper purposes. 

Saxon Woods will undoubtedly be cited by office-holders seeking to argue that a director's professed belief is not enough to defeat a breach of duty claim. They are likely to contend that the court should scrutinise the director's actual conduct and determine whether it was objectively consistent with the standards expected of a loyal fiduciary. 

Why former directors should not assume liability 

Although the decision may appear to strengthen claims against directors, it is equally important to recognise what the Supreme Court did not say. 

The Court did not create a strict liability regime. It did not suggest that every mistaken business decision amounts to a breach of duty. Nor did it undermine the long-established principle that courts should be slow to second-guess commercial judgments made honestly and in good faith. 

Former directors therefore continue to have numerous potential defences, including: 

• demonstrating that decisions were subject to proper board consideration; 

• showing that material information was disclosed to colleagues; 

• establishing that actions fell within the scope of delegated authority; 

• proving reliance upon professional advice; and 

• challenging causation and loss. 

The facts of each case remain critical. 

How we can help 

If you are a former director who has received a letter before action from a liquidator or administrator alleging breaches of sections 171 or 17​7​​​​ ​of the Companies Act 2006​ or misfeasance​, ​early specialist advice is essential. 

Grant Saw's insolvency team regularly acts for directors facing:

• ​​breach of duty claims; 

• misfeasance proceedings; 

• wrongful trading allegations; 

• preferences and transaction avoidance claims; 

• compensation applications; and 

• director disqualification proceedings

If you are being pursued by an insolvency practitioner for alleged breaches of directors' duties, obtaining specialist advice at an early stage can be crucial to protecting your position and defending the claim effectively. 

Frequently Asked Questions 

What did the Supreme Court decide in Saxon Woods v Costa? 

The Supreme Court held that the duty of ​promoting the success of the company in good faith​​ under section 172 of the Companies Act 2006 applies to a director's conduct, not only their state of mind. A director who genuinely believes they are acting in the company's best interests may still breach the duty if they covertly pursue a strategy the board has rejected, or conceal material information from fellow directors. 

Is the section 172 duty subjective or objective? 

It is no​t​​​ purely subjective. A director's honest belief remains relevant, but the court will also assess whether their conduct met the standards of honesty and loyalty expected of a fiduciary. A sincere belief cannot excuse covert ​behaviour that subverts the board's collective decision-making. 

Can a director be liable for breach of duty if they honestly believed they were acting in the company's best interests? ​

​​Possibly.​​ ​Following Saxon Woods v Costa, ​the court will assess the director’s belief as well as their conduct.​ 

How does Saxon Woods v Costa affect claims by liquidators and administrators? 

Insolvency practitioners investigating former directors of insolvent companies are likely to rely on the decision to argue that a director's professed belief is not enough to defeat a breach of duty claim. ​However, depending on the circumstances where it is alleged a director breached his duties, Saxon Woods v Costa can be distinguished, bearing in mind that that the aggravating feature in this case was the director going well beyond his delegated authority given to him by the board of directors.

What should I do if I receive a letter before action from an insolvency practitioner? 

Seek specialist advice before responding. Early advice allows the allegations to be assessed properly, relevant records to be preserved, and a considered response to be prepared. Directors often have strong​ and a broad range of​ defences​ available to them.​

Does Saxon Woods v Costa mean every bad business decision is a breach of duty? 

No. The Supreme Court did not create a strict liability regime, and courts remain slow to second-guess honest commercial judgments. The decision is concerned with disloyal conduct — covertly undermining board decisions or concealing information — not with business decisions that simply turn out badly. 

Insolvency and directors' duties advice 

Grant Saw's Insolvency team advises directors, former directors and business owners across England and Wales on claims brought by liquidators and administrators, breach of duty allegations and director disqualification. 

If you have received a letter before action from an insolvency practitioner, or are concerned about your position as a current or former director, Bimal and his team can help. 

Call 020 8858 6971 or email bimal.kotecha@grantsaw.co.uk to discuss your circumstances.

Subscribe to stay ahead of business and insolvency law developments with Grant Saw. Get periodic updates and practical legal insights to help you stay aware of changes that may affect you, your business or your role as a director. Sign up for our updates here.

Disclaimer 

This article is for general information only and is not legal advice. Laws and guidance change and outcomes depend on facts. If you need advice on your situation, please contact us. Grant Saw Solicitors LLP is authorised and regulated by the Solicitors Regulation Authority. 

Last updated: 22 July 2026