NEDs Beware: Why Non‑Executive Directors Can No Longer Rely on Passivity

A long‑standing assumption persists in many boardrooms that non‑executive directors (“NEDs”) face lower legal risk than their executive counterparts. That assumption has always been questionable. 

Recent case law confirms such assumptions are positively risky.

The Companies Act 2006 (“the Act”) draws no distinction between executive and non‑executive directors when it comes to statutory duties. 

In law, NEDs are held to the same standard to uphold their core duties as executives  and can face the same consequences for breach.

What has changed is judicial attitude. 

Courts are no longer prepared to excuse passivity, silence or unquestioning reliance on others simply because a director was “non‑executive”. 

The modern position is clear: NEDs are not expected to manage but they are expected to think, question and intervene.

The courts in England and Wales have moved decisively away from a culture of tolerance towards disengaged oversight. While they still recognise the distinct role of NEDs, they are now far less willing to excuse failures of engagement, curiosity or challenge particularly in cases involving transactions, exits, shareholder disputes or financial distress. Ignorance, silence and over‑reliance are increasingly treated as governance failures in their own right.

The legal reality 

Directors’ duties under the Act, including the duties to promote the success of the company (s.172) and to exercise reasonable care, skill and diligence (s.174), apply equally to all directors.

Historically, the courts accepted that NEDs are not involved in day‑to‑day management of the company and that they may rely, to a reasonable extent, on executives and professional advice. However, this was never intended as immunity. Delegation has always required supervision and reliance has never excused disengagement; that distinction now lies at the heart of judicial scrutiny.

The Lloyds/HBOS shareholder litigation of John Michael Sharp & Other Claimants listed in the GLO Register v Sir Maurice Victor Blank & Others [2019] EWHC 3078 (Ch), (“Sharp v Blank”) remains the most detailed judicial examination of NED conduct in modern English company law. 

Although the NEDs ultimately avoided liability, the court undertook a granular review of: 

• Board papers and information flows;
• The extent and quality of NED questioning; and
• Whether reliance on executives and advisers was justified.

The key change was the tone rather than the outcome. 

Reliance was no longer assumed. The relevant question was now whether this was a conscientious NED or a passive one. Since Sharp v Blank, the courts have shown a clear willingness to analyse boardroom behaviour, not merely formal compliance or box‑ticking.

In Secretary of State for BEIS v Selby [2021] EWHC 3261 (Ch), a non‑executive director and chair was disqualified for four years under the Company Directors Disqualification Act 1986 following his failure to investigate warning signs and red flags even when he was not personally involved in the underlying fraud. The court held that a role cannot be properly discharged without ongoing enquiry and knowledge and ignoring indicators of misconduct can itself amount to unfitness. This case provides the clearest recent example of a NED being held personally accountable.

The minimum standard was said to be as follows:  Directors must take reasonable steps to place themselves in a position to guide and monitor management. Ignorance, particularly where warning signs exist, is no longer a safe place to stand.

In Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708, whilst not specific to NEDs, the Court of Appeal confirmed that the duty under s.172[AD1]  of the Act requires objective honesty, not merely subjective belief. Deliberate deception of the board, or causing the company to breach agreed governance frameworks (including shareholder agreements), will almost inevitably amount to a breach. For NEDs, the implication of this judgment is significant: knowledge without action can amount to complicity. Whilst a further appeal in this claim is due to heard at the Supreme Court in June 2026, it is clear the courts are increasingly resistant to what might be described as “spectator directors”.

In BTI 2014 LLC v Sequana SA [2022] UKSC 25, the Supreme Court confirmed that once insolvency becomes probable, directors must consider creditors’ interests. For NEDs, this marks an important shift highlighting that financial difficulty cannot be treated as an executive matter. Passive attendance and disengagement during a period of distress for the company s is increasingly risky and the duty landscape changes. It is up to the directors to remain engaged to recognise when it does.

What NEDs are not automatically liable for 

While the courts have been more stringent in their approach to NEDs, they have not imposed an unrealistic or punitive standard so far. 

Cases such as Lifestyle Equities v Ahmed [2024] UKSC 17 confirm that directors (including NEDs) are not liable as accessories without knowledge. However, that protection depends on genuine ignorance (not wilful blindness), reasonable governance structures as well as active, documented oversight. 

Honest mistakes and reasonable commercial judgments remain protected but disengagement does not.

Practical realities for today’s NEDs 

Taken together, recent cases point to a clear judicial expectation that NEDs will:

• Actively engage with board decisions;
• Exercise independent judgment;
• Understand financial and transactional risk;
• Challenge executive assumptions where appropriate; and
• Escalate concerns rather than remain silent.

What is clear from all this is that the English courts have moved from asking whether “this was a bad decision” to whether “this was a properly governed decision and whether every director meaningfully contributed to it?”

Conclusion

In summary, the courts have considerably narrowed the margin for safe passivity for NEDs. The greatest risk for NEDs lies not in what they did but in what they failed to question, challenge or follow up.

Early legal advice can play a critical role in helping non‑executive directors:

• Understand when duties are shifting (particularly in distress or transactions);
• Navigate difficult board dynamics;
• Document challenge and reliance appropriately; and
• Protect their position while discharging their obligations robustly.