Article / 1 Aug 2025
In this month’s update, we:
In Saxon Woods Investments Limited v Francesco Costa [2025] EWCA Civ 708, the Court of Appeal overturned the High Court’s decision, ruling that a director’s duty to act in good faith includes, as a core fiduciary duty, a requirement that the director acts honestly towards the company. The test for honesty is not purely subjective but must also be assessed objectively (by the standards of ordinary decent people).
This decision provides a clear warning to directors that they cannot rely on their subjective belief as a shield for what is objectively dishonest conduct. Even if a director believes that their actions will benefit the company in the long run, deliberately deceiving the board will almost always be inconsistent with a director’s duty to promote the success of the company.
Section 172 of the Companies Act 2006 (CA 2006) provides that a director must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. In doing so, the director must have regard to a (non-exhaustive) list of factors, including the likely long-term consequences of any decision and the need to act fairly as between company members.
The duty to promote the success of the company is just one of the statutory duties that directors owe to their company. There are many potential consequences for breaching directors’ duties, including that the breach could amount to unfairly prejudicial conduct (under section 994 CA 2006), and it could also result in personal liability or disqualification for the relevant director.
The claimant, Saxon Woods, was a minority investor in Spring Media Investments Ltd (the Company). Saxon Woods brought an unfair prejudice petition under section 994 CA 2006 against the Company, alleging that it had acted in breach of a requirement in a shareholders’ agreement “to work together in good faith towards an Exit” by a specified date. Saxon Woods alleged that Mr Costa, the Company’s Chairman and a majority shareholder, was responsible for the prejudicial conduct and had also acted in breach of his fiduciary duties to the Company.
At first instance, the High Court concluded that Mr Costa had caused the Company to breach its obligations under the shareholders’ agreement by failing to work in good faith towards an Exit and by not giving good faith consideration to Exit opportunities. This amounted to unfairly prejudicial conduct.
However, the High Court concluded that Mr Costa was not in breach of his fiduciary duties as a director. The Judge’s reasoning hinged on a subjective test for section 172 – the question was “whether the director honestly believed that his act or omission was in the interests of the company”. The Judge found that Mr Costa had sincerely believed that he was acting in the best interest of the Company and, therefore, had acted in good faith in accordance with his duties as a director. This was despite the fact that Mr Costa had deliberately misled the board and concealed relevant information from them.
Both sides appealed the decision.
The Court of Appeal found the High Court’s approach to section 172 to be fundamentally flawed and held that Mr Costa had acted in breach of his duties to the Company.
The Court clarified that the requirement to act “in good faith” under section 172 includes a core fiduciary duty of honesty. Departing from the High Court’s purely subjective test, the Court of Appeal applied the established legal principle that honesty (and dishonesty) requires an objective assessment of the director’s conduct in light of the facts they knew or believed at the time. That meant that a director’s belief must not only be genuinely held but also objectively considered honest by the standards of ordinary decent people.
The Court ruled that “deliberately deceiving the board of a company must, either always or almost always, be inconsistent with a director’s duty under section 172”, and on that basis, Mr Costa’s misleading behaviour “clearly” constituted a breach of his fiduciary duty under that section. His subjective belief that his actions would ultimately benefit the Company did not negate the dishonesty of his conduct.
The Court of Appeal upheld the High Court’s finding that Mr Costa’s actions had amounted to unfairly prejudicial conduct. However, as a result of its ruling on Mr Costa’s breach of duty, the Court of Appeal concluded that it would be unjust to leave Saxon Woods as a minority shareholder in a company controlled by someone who had demonstrated a willingness to disregard shareholder rights and mislead the board. The Court, therefore, ordered Mr Costa to buy out Saxon Wood’s shares at their open market value as of 31 December 2019 (the date by which the Company should have been sold under the Exit provisions of the shareholders’ agreement).
This Court of Appeal decision provides useful lessons for directors as regards their duty to promote the success of the company. Primarily, the case clarifies that acting in “good faith” goes hand in hand with a requirement to act honestly, and honesty will be assessed both subjectively and objectively.
Even if a director genuinely believes that their actions will benefit the company, they may still be in breach of their duties if they conceal information from the board or deliberately mislead them. Although the Court accepted that there may be exceptional circumstances where this behaviour would not amount to a breach, it is difficult to envision what those circumstances might be.
Directors would be well-advised to ensure that all relevant information is divulged to the entire board, and that major decisions are taken collectively. As ever, board decisions should be properly documented and evidence of “best interests” retained in case of future scrutiny by the courts.
The Court of Appeal has upheld the High Court’s interpretation of compulsory transfer provisions in a company’s articles of association.
The case turned on the meaning of the words “in that capacity” as set out in the transfer provisions and illustrates the importance of using precise language when drafting articles of association.
In Syspal Capital Limited v Truman and Another [2025] EWCA Civ 469, the articles of association of the relevant company (the Holding Company) provided that “If any Employee Member shall cease for any reason...to be employed as an employee, director or consultant of a Group Company (and does not continue in that capacity in relation to any Group Company), then a Transfer Notice shall be deemed to have been served…on the date of such cessation.”
The key issue to be decided was the date on which Mr Truman, a director of the Holding Company, was deemed to have served a transfer notice under the articles. Mr Truman had also been an “Employee Member” and a director of the Company’s subsidiary, but he had been dismissed as an employee of the subsidiary in October 2022 and was then removed as a director of that company the following month. However, he continued as a director of the Holding Company until his resignation in May 2023.
The Holding Company argued that the words “in that capacity” in the transfer provisions referred to the specific capacity in which Mr Truman, as an Employee Member, ceased to be employed – i.e. in October 2022. In contrast, Mr Truman argued that the words referred to any of the three capacities mentioned in the provisions – an employee, director or consultant. As he had continued as a director of the Holding Company until May 2023, the transfer notice should not be deemed served until that time. This interpretation would result in Mr Truman receiving “Fair Value” for his shares, a significantly higher amount than the “Market Value” he would receive if the Holding Company’s interpretation was correct.
At first instance, the Court agreed with Mr Truman’s interpretation, finding that the word “employed” in the transfer provisions was not used in the strict sense of being an employee. Instead, it was used more broadly to also cover being engaged as a director or consultant. The reference to “in that capacity” related back to those three different capacities, meaning that the provision did not apply when Mr Truman ceased to be employed by the subsidiary but continued as a director of the Holding Company. The Judge said this was a more natural reading of the wording and that it accorded with commercial common sense.
The Holding Company appealed.
The Court of Appeal dismissed the appeal, largely agreeing with the High Court’s reasoning.
The Court acknowledged that the appeal turned on the meaning of the phrase “in that capacity” and confirmed that its meaning was to be ascertained by:
The Court held that although the use of the singular “that capacity” was capable of referring back to one or other of the specific capacities in which an Employee Member might be employed, it was equally capable of referring to the single overarching capacity of being “employed”, whether as an employee, director, or consultant. That latter interpretation made more commercial sense, aligning with the default position that, in the absence of agreement, shares should be sold at Fair Value, with Market Value being an exception.
The Court found that the Holding Company’s interpretation would lead to commercially illogical outcomes, such as forcing a sale of shares at a lower price if an employee ceased to be employed full time but still continued to be involved with the running of the business as a consultant.
This decision provides a stark reminder of the importance of clear and precise drafting in all contractual documents. The ambiguity over the meaning of “in that capacity” in the articles of association led to significant financial implications and protracted litigation for all of the parties involved.
It is common for the articles of a private company to contain compulsory transfer provisions so that when a shareholder who is engaged in the business leaves, they do not benefit from any increase in the company’s value after their departure (to which they will not have contributed).
Companies should ensure that their articles clearly define what constitutes a ‘cessation’ event, specifying whether it applies to a single role or all engagements within the group. If they fail to do so, this case suggests that the courts will lean towards interpretations that uphold commercial common sense whilst potentially protecting employee-shareholders from being forced to transfer shares at an unexpected undervalue.
The Financial Conduct Authority (FCA) has published Policy Statement 25/9, confirming its final rules to implement the new prospectus regime in the UK.
The FCA’s new rules – “Prospectus Rules: Admission to Trading on a Regulated Market (PRM)” – will replace the current Prospectus Regulation Rules and, in conjunction with the Public Offers and Admissions to Trading Regulations 2024, will provide the new regulatory framework for public offers and admissions to trading in the UK. This new framework should make it easier for companies to raise capital in the UK and reduce costs for companies.
The new rules are expected to come into effect on 19 January 2026.
Following recommendations from the UK Listing Review and several public consultations, the Public Offers and Admissions to Trading Regulations 2024 (the POAT Regulations) were made in January 2024, providing the framework for a new UK public offers and admissions to trading regime. The POAT Regulations will replace the UK Prospectus Regulation when they come fully into force – expected to be in January 2026.
Under the POAT Regulations, an offer of securities to the public will be unlawful unless an exemption applies. Although many of the current prospectus exemptions will be carried over, the POAT Regulations include an important new exemption that applies when securities are to be admitted or are already admitted to trading on a regulated market or to a primary multilateral trading facility (MTF), such as AIM.
In another significant change, the POAT Regulations delegate to the FCA the detailed rule-making powers for the new regime. These include the power to set rules on when a prospectus is required where a company is seeking to admit securities to a regulated market or to a primary MTF, and what information should be included in a prospectus.
Following its consultations on proposals for the new regime, the FCA has now published the final version of its rules (as set out in Policy Statement 25/9). The Policy Statement also confirms amendments to the Market Conduct sourcebook for firms operating primary MTFs and to the UK Listing Rules.
Whilst the FCA has maintained the bulk of the current prospectus requirements that apply to an IPO on a regulated market (including as to prospectus content), the new regime will introduce significant reforms. Some key issues are highlighted below:
As stated above, the new public offers and admission to trading regime is expected to take effect on 19 January 2026.
In the meantime, the FCA has indicated that it will consult and issue guidance in several areas, including working capital statements, PFLS and climate-related disclosures.
Further work to update or delete other prospectus-related material in the FCA’s Knowledge Base will also continue during 2025 and into 2026.
First published in accountancy daily.
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