Judicial Intervention in Directors’ Decision-Making Process: Section 172 of the Companies Act 2006

Abstract

Section 172 of the Companies Act 2006 has been criticised for being unfit for purpose in a post-financial crisis world, given that it is very difficult to hold directors liable under this provision. Although courts should not second-guess board decisions, it does not follow that they should be precluded from intervening in boards’ decision-making process through the adoption of a searching standard of review when they assess whether directors have breached s. 172. This article advances and defends a framework — the heightened review — to evaluate board decision-making process under this provision. It is argued that the “heightened review” is beneficial to the company and is supported by case law and policy considerations.

Keywords: Directors' Duties; Decision-Making Process; Judicial Intervention