What Is a Misfeasance Claim and Am I at Risk?

Misfeasance is a breach of duty by a director or officer of a company, typically involving: misapplication of company assets, breach of fiduciary duty, negligence causing company loss, or breach of duty to act in the company's best interests. In insolvency, misfeasance claims are brought by liquidators to recover money for creditors.

Common examples include: taking excessive director remuneration when company was insolvent, failing to maintain proper company records, allowing company to trade while insolvent, making preferential payments to connected parties, entering into transactions that benefited directors at creditors' expense, misusing company funds for personal purposes, and failing to file accounts or tax returns.

In liquidation, the liquidator brings misfeasance claims on behalf of the company and creditors. Creditors can also bring claims in certain circumstances. The claim is brought against directors, shadow directors, or other officers who have breached their duties. The claim is made to the court under s.212 or s.214 of the Insolvency Act.

If a claim succeeds, directors can be ordered to: repay money taken from the company, pay compensation for losses caused, contribute to the company's assets, and pay legal costs. The court has discretion in determining the amount. These orders are personal – directors pay from their own assets.

Defenses include: acting in good faith in the company's best interests, relying on professional advice, decisions were commercial judgments made on available information, maintaining proper company records and board minutes, not benefiting personally from transactions, and all actions were approved by the board.

Misfeasance is a legal claim against directors for breach of duty during company management. It covers: misapplication of company money, breach of fiduciary duty, negligence, and any conduct that caused loss to the company.

Claims are typically brought by: liquidators (most common), creditors, shareholders, or the company itself. Liquidators investigate director conduct and frequently bring misfeasance claims to recover money for creditors.

Common examples: taking company money without authority, preferential payments to related parties, using company assets personally, failure to maintain proper books and records, failing to act in company's best interests, and negligence in management.

If successful: court orders director to repay money or contribute to company assets, may include interest, legal costs may be awarded against director, and affects director's conduct record for future.

Defenses include: acted in good faith, acted in company's best interests, relied on professional advice, decisions were commercially justifiable, acted within authority, and any authorization for the conduct. Each case depends on facts.

Misfeasance: breach of fiduciary duty or trust by director, including misapplication of assets, breach of care/skills, or conduct causing loss to company. Civil liability in insolvency.

Claims brought by: liquidator, administrator, creditor, shareholder, or company in proceedings under Insolvency Act. Most commonly by liquidator investigating director conduct.

Conduct includes: misappropriating company funds, favouring certain creditors, taking excessive remuneration, failing to maintain proper books, or acting in conflict of interest.

Consequences: director ordered to repay/restoration of money, compensation to company, contribution to assets, and disqualification possible (overlapping wrongful trading).

Defences: acted in good faith, believed conduct was in company interests, relied on professional advice, no loss caused, or statute of limitations elapsed.

Breach of duty under Companies Act 2006. Can include misapplication of funds, fraud, or negligence.

Company, liquidator, creditors, or members can bring misfeasance proceedings in court.

Account of profits, restoration of assets, compensation for losses, or contribution.