What does “acting in good faith” really mean for directors? Key lessons from the Supreme Court

Written by Nana Poku, Corporate & Commercial Solicitor

Directors are required to act in good faith and promote the success of their company under section 172 of the Companies Act 2006. While this duty is well known, what does “acting in good faith” actually mean in practice?

The UK Supreme Court has recently provided important clarification in Saxon Woods Investments Limited and others v Francesco Costa [2026] UKSC 21. The judgment confirms that a director’s duty of good faith is not determined solely by their personal belief that they are acting in the company’s best interests. Directors must also meet an objective standard of honesty, openness and loyalty in the way they exercise their powers.

The case concerned a chairman who believed that delaying a sale of the company would ultimately generate greater value. However, rather than openly presenting that view to the board the courts found that he pursued the strategy covertly, misled fellow directors and undermined the agreed sale process.

The decision provides valuable guidance for directors of companies of all sizes. Below are some of the key lessons every director should be aware of.

1. Good intentions alone are not enough

A director may genuinely believe they are acting in the company’s best interests, but that belief alone will not always protect them.

Acting in good faith requires directors to conduct themselves honestly, openly and loyally towards both the company and their fellow board members. If a director conceals plans, acts without authority or deliberately keeps colleagues in the dark, they may be found to have breached their duties, even if their intentions were well meaning.

2. Major decisions should be taken by the board

Directors are expected to make significant business decisions collectively through the board.

Where a director believes an agreed strategy is not in the company’s best interests, they should raise their concerns openly with the board and seek to persuade fellow directors through the company’s governance processes. Acting unilaterally or covertly to frustrate an agreed strategy may amount to a breach of duty, even where the director believes their alternative approach would better promote the company’s success.

The Supreme Court’s judgment serves as a reminder that companies are governed through board decision-making, not by individual directors acting alone.

3. Transparency is essential

Trust and transparency are fundamental elements of good corporate governance.

Directors should be open about their plans, concerns and relevant information. The courts have repeatedly taken a dim view of directors who adopt covert tactics, withhold information or seek to advance their own agenda behind the scenes.

The Supreme Court’s decision reinforces the principle that good faith requires openness and honest dealings with fellow directors.

4. Respect agreed authority and company governance

Directors must operate within the framework established by the company’s constitution, shareholder agreements and board resolutions.

Where the board has agreed a particular strategy, directors should ordinarily seek to implement that approach unless they consider the strategy is no longer in the company’s best interests, then they should raise their concerns and seek to effect change through the company’s governance processes. Where a director has been delegated specific responsibilities, they should only exercise those powers for the purpose for which they were granted.

Using authority for an unauthorised purpose is likely to attract close scrutiny from the courts.

5. Smaller businesses are not exempt

These principles are particularly important for owner-managed and family-run businesses, where directors often have close relationships and may be accustomed to making decisions informally.

However, the size of the company does not reduce directors’ legal obligations. Even well-intentioned actions can lead to significant disputes if corporate procedures are ignored or fellow directors are excluded from decision-making.

In serious cases, the courts can impose substantial remedies, including orders requiring shareholders to buy out other shareholders or compensate those who have suffered loss.

Key takeaways for directors

To ensure compliance with your duty to act in good faith, directors should:

• Work collaboratively with fellow board members and follow established company procedures.
• Be open and transparent about plans, intentions and key information.
• Avoid misleading, concealing information from, or sidelining other directors.
• Respect agreed business strategies and the limits of delegated authority.
• Ensure important decisions are made through the proper governance processes.

Is your board following best practice?

The Supreme Court’s decision provides a timely reminder that acting in good faith involves far more than simply having good intentions. Directors must demonstrate honesty, transparency and a commitment to collective decision making.

If you are unsure whether your board’s governance arrangements, decision-making processes or director conduct meet the required standards, seeking legal advice at an early stage can help avoid costly disputes and protect both the company and its directors.

How we can help

This article’s author, Nana Poku is an Associate Solicitor within FJG’s Corporate & Commercial Solicitor team.

If you have any questions about the above subject, please do not hesitate to get in touch with Nana on 01206 694 443 or via email: [email protected]

For further information, please do not hesitate to contact us by using our online contact form or call 0845 543 5700.