Supreme Court clarifies directors' duties

In a pivotal ruling, the Supreme Court has established itself as the leading authority on the breach of directors' duties, specifically regarding Section 172 of the Companies Act 2006. The unanimous decision determined that Francesco Costa, the defendant and appellant, failed to uphold his duties by secretly undermining the exit strategy approved by Saxon Woods' board. The Court underscored that the statutory duty to act “in good faith” encompasses not just a director’s intentions but also their actual conduct.

The ruling clarified that directors cannot mislead or work against board-approved decisions, even when they believe they are acting in the company's best interests. The Supreme Court articulated that whether a director acted in good faith should be assessed against objective standards, highlighting the importance of loyalty in their dealings. Specifically, the ruling stated, “In no situation could a single director taking covert steps concealed from the rest of the board to subvert the board’s objective - albeit believing he is doing so in the company’s best interests - be found to have adhered to his s172 duty to the company.”

Furthermore, the Supreme Court upheld the Court of Appeal's unconditional directive for Mr Costa to buy out Saxon Woods' shareholding at its undiscounted valuation as of 31 December 2019, reinforcing the consequences of breaching director duties.

Genevieve Quierin, a partner at Stephenson Harwood and leader of the team, expressed her satisfaction with the outcome, stating, “This is a landmark decision for UK companies and directors. The Supreme Court has sent a clear message that directors must act loyally and transparently, and that a subjectively held belief alone will not excuse covert or disloyal conduct. We are delighted to have achieved this outcome for Saxon Woods and to have helped clarify such an important aspect of company law.” Quierin was supported by her fellow partners Adam Polonsky and Associate Genevieve Dipper in this significant case.