---
title: "Supreme Court Raises the Bar for Directors’ Good Faith Duty"
url: https://lexlaw.co.uk/solicitors-london/supreme-court-raises-the-bar-for-directors-good-faith-duty/
date: 2026-07-28
modified: 2026-07-28
author: "LEXLAW Solicitors & Barristers"
description: "In a significant July 2026 ruling, the Supreme Court has confirmed that a director's duty to act in good faith under section 172 of the Companies Act contains an objective element. A director who covertly pursues his own preferred outcome while misleading the board breaches his fiduciary duty, even where his motives are sincere."
categories:
  - "Case Study"
  - "Director's Duties"
  - "Directors Disqualification"
  - "Supreme Court"
tags:
  - "boardroom dispute"
  - "breach of directors duty"
  - "companies act 2006"
  - "Corporate Governance"
  - "derivative claim"
  - "director liability"
  - "Directors Duties"
  - "duty of good faith"
  - "duty of loyalty"
  - "fiduciary duty directors"
  - "minority shareholder rights"
  - "Misfeasance"
  - "promote success of company"
  - "section 172 Companies Act"
  - "section 994 petition"
  - "shareholder dispute"
  - "unfair prejudice petition"
image: https://lexlaw.co.uk/wp-content/uploads/Supreme-Court-confirms-objective-element-to-directors-duty-to-act-in-good-faith-under-Companies-Act-s.172-1024x683.png
word_count: 1109
---

# Supreme Court Raises the Bar for Directors’ Good Faith Duty

*A director who genuinely believes he is acting in his company's best interests is not protected from liability if the way he pursues that belief involves deception and disloyalty. In a significant July 2026 ruling, the Supreme Court has confirmed that the duty on directors to act in good faith to promote the success of the company contains an objective element. A director who covertly drove a company towards his own preferred outcome, while concealing his conduct from his fellow directors, was held to have breached his fiduciary duty even though his motives were sincere.*

## What Did the Supreme Court Decide?

The dispute arose from a minority shareholder's [unfair prejudice petition](https://lexlaw.co.uk/solicitors-london/unfair-prejudice-petitions-a-complete-2026-guide-for-shareholders/) under section 994 of the Companies Act 2006, the statutory route we examine in detail in our [quick guide to section 994 petitions](https://lexlaw.co.uk/solicitors-london/quick-guide-s-994-companies-act-unfair-prejudice-petitions/). A director had been entrusted by the board with exclusive conduct of the company's planned sale, but delayed that sale in defiance of a shareholders' agreement because he believed a later exit would produce a better return, the kind of conflict our [business and shareholder dispute team](https://lexlaw.co.uk/business-shareholder-partnership-directors-disputes-resolution-advice/) is instructed on regularly.

To achieve his objective he kept his fellow directors and shareholders entirely outside the exit process and misled the board into believing the company was meeting its contractual obligations. The Supreme Court dismissed his appeal and confirmed a breach of section 172, reasoning consistent with the approach to director accountability we analysed in our [Manolete fiduciary duty case study](https://lexlaw.co.uk/solicitors-london/manolete-case-study-directors-to-repay-misappropriated-0-5m-fiduciary-duty-breach/), and directly relevant to directors who later face [claims brought by liquidators](https://lexlaw.co.uk/solicitors-london/practice-areas-defending-claims-brought-by-liquidators/) or a threatened [winding up petition](https://windinguppetitionsolicitors.co.uk/winding-up-petition/).

## What Does Section 172 Actually Require of Directors?

Section 172 requires a director to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. The director argued that good faith described only his thinking, so a sincere belief licensed whatever steps he judged necessary, an argument our [director dispute solicitors](https://lexlaw.co.uk/business-shareholder-partnership-directors-disputes-resolution-advice/) would caution any board member against, particularly where conduct may later be scrutinised in [section 994 proceedings](https://lexlaw.co.uk/solicitors-london/unfair-prejudice-petition-procedure-how-to-bring-a-section-994-claim/) or in [misfeasance claims after insolvency](https://lexlaw.co.uk/solicitors-london/practice-areas-defending-claims-brought-by-liquidators/).

The court rejected that reading. Good faith extends to a director's conduct in pursuit of what he believes best for the company, and where that conduct is challenged the court will assess it objectively, meaning lies, cheating, deception and disloyalty remain off limits however sincere the underlying belief. Directors unsure where robust decision making ends and breach begins should take early advice from our [shareholder dispute specialists](https://lexlaw.co.uk/solicitors-london/tag/shareholder-disputes/), especially where the company also faces [HMRC enforcement pressure](https://taxdisputes.co.uk/hmrc-enforcement-action/) or a possible [petition from a creditor](https://windinguppetitionsolicitors.co.uk/).

## Why the Court Rejected a Purely Subjective Test

The court gave three reasons. First, an objective element is consistent with the pre-codification common law, under which the equivalent obligation was a duty of loyalty breached by disloyal conduct, the same principle underpinning the [fiduciary duty claims](https://lexlaw.co.uk/solicitors-london/manolete-case-study-directors-to-repay-misappropriated-0-5m-fiduciary-duty-breach/) pursued against directors after a collapse. Second, it accords with the purpose of codifying directors' duties to operate in harmony with a company's constitution, a framework relevant to every [minority shareholder claim](https://lexlaw.co.uk/solicitors-london/unfair-prejudice-petitions-a-complete-2026-guide-for-shareholders/) our [litigation team](https://lexlaw.co.uk/business-shareholder-partnership-directors-disputes-resolution-advice/) handles.

Third, the court thought it highly unlikely Parliament intended directors merely to think, rather than act, in good faith, describing a purely subjective test as a recipe for chaos and paralysis in corporate governance and destructive of board collegiality. Where poor advice from accountants or corporate advisers has contributed to a governance failure, directors should also consider a [professional negligence claim](https://professionalnegligenceclaimsolicitors.co.uk/professional-negligence-claims/), a route explored in our guidance on whether [directors can sue professional advisers](https://professionalnegligenceclaimsolicitors.co.uk/can-directors-sue-professional-advisers-for-business-losses/), subject always to the [applicable limitation period](https://professionalnegligenceclaimsolicitors.co.uk/limitation-period-in-professional-negligence-claims/).

## Good Faith, Dishonesty and the Fiduciary Framework

The court also clarified that where a director owes a fiduciary duty of loyalty, it is unnecessary to prove dishonesty by reference to the established objective dishonesty test in order to establish a breach, because the fiduciary duty itself supplies the analytical framework. That distinction matters when assessing the merits of a [shareholder claim](https://lexlaw.co.uk/solicitors-london/tag/advice-for-shareholders/), whether pursued through an [unfair prejudice petition](https://lexlaw.co.uk/solicitors-london/unfair-prejudice-petition-procedure-how-to-bring-a-section-994-claim/) or through the [derivative action route against directors](https://lexlaw.co.uk/business-shareholder-partnership-directors-disputes-resolution-advice/).

Dishonesty may still serve as powerful evidence, but it forms only part of a wider enquiry into loyalty and good faith, which makes it easier for a wronged shareholder to succeed without clearing the higher dishonesty threshold. Boards facing internal conflict should therefore take advice promptly from our [commercial litigators](https://lexlaw.co.uk/solicitors-london/tag/shareholder-disputes/), and directors whose companies carry unresolved tax exposure should address that in parallel with our [HMRC investigation specialists](https://taxdisputes.co.uk/hmrc-tax-investigations/) before conduct is tested in an [appeal or enforcement context](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/).

## What This Means for Directors and Shareholders

The practical message for directors is that sincerity is not a shield. A director who disagrees with the board's collective view cannot lawfully implement his own strategy by covert means and must instead advance his position openly through proper governance channels, a discipline our [corporate governance advisers](https://lexlaw.co.uk/business-shareholder-partnership-directors-disputes-resolution-advice/) help boards embed long before matters reach a [contested petition](https://lexlaw.co.uk/solicitors-london/unfair-prejudice-petitions-a-complete-2026-guide-for-shareholders/) or a [just and equitable winding up application](https://windinguppetitionsolicitors.co.uk/winding-up-petition/).

For minority shareholders the ruling strengthens protection where a director acts disloyally behind the scenes and broadens the routes by which a petition can succeed. If you are a director concerned about exposure, or a shareholder who suspects the board is being misled, our team can assess your position, drawing where necessary on our [liquidator claim defence practice](https://lexlaw.co.uk/solicitors-london/practice-areas-defending-claims-brought-by-liquidators/), our [insolvency specialists](https://windinguppetitionsolicitors.co.uk/) and our [claims against negligent insolvency practitioners](https://professionalnegligenceclaimsolicitors.co.uk/claims-against-negligent-administrators-insolvency-practitioners-liquidators-legal-advice-second-opinion/) team.

## How LEXLAW Can Help

Our dual qualified solicitors and barristers advise directors, boards and shareholders across the full range of [director, shareholder and partnership disputes](https://lexlaw.co.uk/business-shareholder-partnership-directors-disputes-resolution-advice/), from the first signs of boardroom conflict through to trial, including [bringing or resisting a section 994 claim](https://lexlaw.co.uk/solicitors-london/unfair-prejudice-petition-procedure-how-to-bring-a-section-994-claim/) and [defending claims brought by liquidators](https://lexlaw.co.uk/solicitors-london/practice-areas-defending-claims-brought-by-liquidators/).

Whether you need to defend your conduct as a director, pursue a remedy as a minority shareholder, or simply understand your duties before a dispute crystallises, contact us today. We can also coordinate with our [winding up petition team](https://windinguppetitionsolicitors.co.uk/contact/), our [HMRC dispute solicitors](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) and, where advisers have failed you, arrange a [fixed fee second opinion](https://professionalnegligenceclaimsolicitors.co.uk/second-opinion-legal-fixed-fee-new-representation-litigation-advice/).

### Frequently Asked Questions (FAQs)

1. What is a director's duty under section 172?

To act in the way he considers, in good faith, would most likely promote the success of the company for its members as a whole. Our [director dispute team](https://lexlaw.co.uk/business-shareholder-partnership-directors-disputes-resolution-advice/) can explain how it applies to your board.

2. Is the good faith test subjective or objective?

Both. The court respects a director's genuine judgment but assesses their conduct objectively, an approach mirrored in the [fiduciary duty claims](https://lexlaw.co.uk/solicitors-london/manolete-case-study-directors-to-repay-misappropriated-0-5m-fiduciary-duty-breach/) we defend.

3. Can a director be liable even if they acted sincerely?

Yes. Sincere belief is no defence where conduct involves deception or disloyalty, a risk that often surfaces later in [claims brought by liquidators](https://lexlaw.co.uk/solicitors-london/practice-areas-defending-claims-brought-by-liquidators/).

4. What is an unfair prejudice petition?

A claim that the company's affairs are being run unfairly to a shareholder's detriment. See our [complete 2026 guide](https://lexlaw.co.uk/solicitors-london/unfair-prejudice-petitions-a-complete-2026-guide-for-shareholders/) and our [procedure guide](https://lexlaw.co.uk/solicitors-london/unfair-prejudice-petition-procedure-how-to-bring-a-section-994-claim/).

5. What if my company also faces creditor or tax pressure?

Address both together. Our [winding up petition team](https://windinguppetitionsolicitors.co.uk/) and [HMRC enforcement specialists](https://taxdisputes.co.uk/hmrc-enforcement-action/) work alongside our company law litigators.