Griffin Law possesses considerable expertise in handling corporate insolvency, working closely with insolvency practitioners to achieve optimal outcomes for companies in liquidation. Our primary objective is to restore the company’s assets for the benefit of its creditors and shareholders. We provide assistance in various cases to achieve this aim, particularly where directors of a company in liquidation have breached their duties by misapplying company assets, thereby failing to prioritise the interests of the company, its creditors, and/or its shareholders.

We invite you to consider the following points:

1. What if a director believed they were acting in the company’s best interests, seemingly fulfilling their obligations under section 172 of the Companies Act 2006 (“CA 2006”)?

In the recent case of Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708, the Court of Appeal delivered a significant judgment on directors’ duties under section 172 of the CA 2006. Pursuant to a shareholder agreement, the shareholders and the company, Spring Media, were obliged to work towards an exit plan by an agreed deadline and to consider any interim exit opportunities. Mr Costa, the chair of Spring Media’s board, believed he was acting in good faith and in the company’s best interests by providing limited information to shareholders about a sale process and rejecting an offer from a potential buyer.

Saxon Woods, a shareholder in Spring Media, contended that Mr Costa’s conduct caused the company to breach the shareholder agreement. Under section 172 of the CA 2006, directors are required to promote the success of the company for the benefit of its members as a whole. However, the Court of Appeal held that Mr Costa’s genuine belief in promoting the company’s success was insufficient to discharge his duties. The objective element of the test—whether the director acted in good faith for the company’s benefit—was not met, as his conduct in providing limited information to the board and rejecting the buyer’s offer undermined his claim of acting honestly.

2. What if individuals making significant decisions within the company are not registered as directors, thus appearing to fall outside the scope of section 172 of the CA 2006 and section 212 of the Insolvency Act 1986 (“IA 1986”), which governs directors’ duties in liquidation?

In certain cases, such individuals may be classified as “shadow director(s)” or “de facto directors.” A shadow director is someone who, though not formally appointed as a director, exercises influence such that the company’s registered (“de jure”) directors are accustomed to acting on their instructions. Similarly, a de facto director acts as a director and assumes the responsibilities of one without being validly appointed or registered.

For an individual to be considered a shadow director, the company’s other directors must habitually act on their instructions in the collective exercise of their management powers. The influence of a shadow director need not extend to all corporate activities, and the board may retain discretion in areas where the shadow director does not issue instructions.

There is no single test for identifying a de facto director under UK law. The key question is whether the individual forms part of the company’s corporate governing structure and has assumed the status and functions of a director, thereby incurring equivalent responsibilities. The identification of shadow directors remains a complex area, particularly following the Supreme Court’s decision in Re Paycheck. It is uncertain whether Millett J’s test in Hydrodan will remain the definitive approach for determining shadow director status.

Conclusion

Should you require legal advice on these matters, Griffin Law is well-equipped to assist both individuals and corporations affected by a director’s misconduct. A genuine belief that actions were in the company’s best interests will not necessarily shield a director from liability if those actions result in losses to creditors or shareholders. Furthermore, in the context of corporate insolvency, individuals who act as directors—whether formally appointed or not—may face the same scrutiny as duly appointed directors.

Griffin Law is a dispute resolution firm comprising innovative, proactive, tenacious and commercially-minded lawyers. We pride ourselves on our close client relationships, which are uniquely enhanced by our transparent fee guarantee and a commitment to share the risks of litigation. For more details of our services please email justice@griffin.law or call 01732 52 59 23.

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