Defending Against
Misfeasance Claims

Act immediately - time is critical when facing a misfeasance claim. You should:

• • Secure all documents: Preserve all company records, emails, and communications
• • Contact specialist lawyers: Engage solicitors experienced in director misfeasance defense
• • Notify insurers: Inform your D&O insurance provider immediately
• • Avoid admissions: Don't make any statements about the allegations without legal advice

The response deadlines are strict, and early action can significantly improve your defense options and potential outcomes.

D&O insurance may provide coverage for misfeasance claims, but this depends on your specific policy terms and the nature of the allegations:

• • Coverage scope: Most policies cover legal costs and damages for wrongful acts
• • Exclusions: Fraudulent or criminal conduct is typically excluded
• • Notification requirements: You must notify insurers promptly to preserve coverage
• • Policy limits: Check your coverage limits and deductibles

It's crucial to involve your insurance broker and legal team early to ensure proper notification and maximize coverage.

Several defenses can be effective against misfeasance claims:

• • Business judgment rule: Decisions made in good faith with reasonable care
• • Reliance on professional advice: Acting on proper legal or financial advice
• • No breach of duty: Demonstrating you acted within your authority and duties
• • No causation/loss: Proving your actions didn't cause the alleged loss
• • Limitation defense: Claims brought outside the 6-year time limit
• • Section 1157 relief: Court discretion to excuse honest, reasonable directors

The strength of these defenses depends on your specific circumstances and the quality of documentation supporting your decisions.

Yes, successful misfeasance claims can result in personal liability for directors:

• • Wrongful trading: Personal liability for company debts incurred after you knew or should have known insolvency was unavoidable
• • Fraudulent trading: Unlimited personal liability for debts where fraud is proven
• • Breach of duty: Compensation for losses caused by your breach of fiduciary duties
• • Asset recovery: Repayment of misappropriated company assets

However, the court has discretion under Section 1157 to excuse directors who acted honestly and reasonably, and strong defenses can prevent or limit personal liability.

The duration of misfeasance proceedings varies significantly based on complexity and whether settlement is achieved:

• • Early settlement: 6-12 months if resolved through negotiation
• • Court proceedings: 18-36 months if the case goes to trial
• • Complex cases: Can take 3-5 years with multiple defendants and extensive evidence
• • Appeals: Additional 12-18 months if either party appeals

Factors affecting timeline include:

• • Complexity of the allegations
• • Amount of evidence to review
• • Number of defendants involved
• • Court availability and case management
• • Willingness of parties to settle

Settlement can be advantageous in many cases, but the decision depends on several factors:

• • Strength of defense: Weak cases may warrant early settlement
• • Cost considerations: Legal costs can exceed settlement amounts
• • Time and stress: Litigation is lengthy and stressful
• • Reputation protection: Settlement avoids public trial
• • Insurance coverage: Insurers may prefer settlement

However, if you have strong defenses and the claim is without merit, fighting the case may be the better option. Your legal team can advise on the best strategy based on your specific circumstances.

There are several options if you're concerned about legal costs:

• • Insurance coverage: D&O insurance should cover legal costs
• • Conditional Fee Arrangements (CFAs): "No win, no fee" arrangements
• • After-the-Event (ATE) insurance: Covers adverse costs if you lose
• • Legal aid: Rarely available but worth checking eligibility
• • Payment plans: Some firms offer flexible payment arrangements

Don't let cost concerns prevent you from seeking legal advice. Many solicitors offer free initial consultations, and failing to defend properly could result in much higher personal liability.

Misfeasance claims can potentially impact your future as a director:

• • Director disqualification: Serious breaches may lead to disqualification proceedings
• • Reputation damage: Public proceedings can harm professional reputation
• • Insurance difficulties: Future D&O insurance may be more expensive or harder to obtain
• • Due diligence concerns: Potential employers/partners may be deterred

However, successful defense of misfeasance claims typically has no formal impact on your ability to serve as a director. Key points:

• • Misfeasance claims are civil, not criminal proceedings
• • No automatic disqualification from successful defense
• • Settlement doesn't constitute admission of wrongdoing
• • Strong defense can actually demonstrate competence