Understanding misfeasance claims is critical for every UK company director facing insolvency proceedings.
Key Takeaways
- A misfeasance claim alleges that a director has breached their fiduciary duties, misapplied company assets, or acted contrary to the interests of creditors.
- Personal liability is real. If successful, a misfeasance claim can result in directors being ordered to personally repay or contribute to company funds.
- Early expert advice is essential. The sooner you seek professional guidance, the more options you have to defend, mitigate, or resolve a potential claim.
- Don't wait until it's too late. Many directors make the situation worse by ignoring warning signs or trying to handle it alone.
What Is a Misfeasance Claim?
A misfeasance claim is a legal action brought against a company director — typically by a liquidator or administrator — alleging that the director has been guilty of misfeasance or breach of fiduciary duty in relation to the company. In simple terms, it means someone in authority believes you misused your position as a director in a way that caused loss to the company or its creditors.
Under Section 212 of the Insolvency Act 1986, a liquidator, creditor, or contributory can apply to the court to examine the conduct of a director (or former director) and seek a court order requiring them to repay, restore, or contribute money to the company's assets. This is not a criminal prosecution — it is a civil remedy — but the financial consequences can be severe.
The Legal Framework
Section 212 of the Insolvency Act 1986 empowers the court to examine the conduct of any person who has been involved in the promotion, formation or management of the company and order them to repay or contribute such sums as the court thinks fit. This applies to directors, former directors, shadow directors, and even others involved in the company's affairs.
Common Grounds for a Misfeasance Claim
Misfeasance claims can arise from a wide range of director conduct. Understanding the most common triggers can help you recognise risk early. Here are the most frequent grounds:
Misapplication of Company Assets
Using company funds or assets for personal benefit, or transferring assets out of the company at undervalue.
Preferential Payments
Paying certain creditors in preference to others when the company was insolvent, particularly paying connected parties.
Excessive Remuneration
Drawing salary, dividends, or benefits that were unreasonable given the company's financial position.
Breach of Fiduciary Duty
Failing to act in the best interests of the company and its creditors, including conflicts of interest.
Did You Know?
A misfeasance claim can be brought against directors even after the company has been dissolved. The look-back period can extend several years, and there is no upper financial limit on what a court can order you to repay.
Why Misfeasance Claims Are So Serious
Many directors underestimate the gravity of a misfeasance claim until it is too late. Here is why these claims demand immediate and serious attention:
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1
Unlimited Personal Liability
Unlike some other insolvency-related claims, there is no statutory cap on what a court can order you to pay under a misfeasance claim. The court can order you to contribute whatever sum it considers appropriate to reflect the loss caused.
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2
Director Disqualification Risk
A misfeasance finding often goes hand-in-hand with director disqualification proceedings, which can ban you from acting as a director for up to 15 years.
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3
Impact on Personal Assets
A successful misfeasance claim can result in a court order against you personally — which means your personal savings, property, and other assets could be at risk.
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4
Reputational Damage
A misfeasance finding is a matter of public record and can severely damage your professional reputation, making it difficult to obtain credit, secure future directorships, or even maintain existing business relationships.
Common Misconceptions About Misfeasance Claims
Over years of advising directors, we have encountered many misconceptions that can lead directors into a false sense of security. Let us address the most common ones:
"I didn't do anything wrong, so I have nothing to worry about."
Misfeasance is not about dishonesty — it is about the breach of your duties as a director. You can act in good faith and still be found to have breached your duties to creditors or the company. Intent is not always the decisive factor.
"The company has already been liquidated — it's over."
Liquidation is often when misfeasance claims begin, not when they end. A liquidator's job includes investigating director conduct, and claims can be brought long after the company ceases to exist.
"I can handle this myself — I don't need professional advice."
Misfeasance claims involve complex areas of insolvency law, company law, and civil procedure. Going it alone against an experienced liquidator's legal team is extremely risky and rarely ends well.
"My accountant or solicitor will sort it out."
Generalist accountants and solicitors may not have the specialist insolvency and director-defence expertise needed to properly handle a misfeasance claim. Specialist advice is essential.
Why Seeking Expert Advice Is Critical
When facing a potential misfeasance claim, the single most important step you can take is to seek specialist advice — and to do so as early as possible. Here is why:
Early Risk Assessment
A specialist can assess whether your conduct genuinely gives rise to a viable misfeasance claim and quantify your exposure before matters escalate.
Strategic Defence Planning
Expert advisors can build a robust defence strategy, identifying legal arguments and evidence that a layperson would simply miss.
Negotiation & Settlement
Many misfeasance claims are resolved through negotiation rather than court. Skilled negotiators can often achieve settlements that significantly reduce your liability.
Peace of Mind
Simply knowing that an experienced professional is handling your case can relieve the immense stress and anxiety that accompanies a misfeasance claim.
What to Do If You Are Facing a Misfeasance Claim
If you suspect that a misfeasance claim may be brought against you — or if you have already received correspondence from a liquidator — here is a practical action plan:
Don't Panic — But Don't Delay
Take a deep breath. A misfeasance allegation does not automatically mean you will be found liable. But every day you delay seeking advice can limit your options.
Gather Your Documentation
Start compiling all relevant records: board minutes, financial statements, correspondence with creditors, bank statements, and any advice you received from professionals during the relevant period.
Seek Specialist Advice Immediately
Contact an advisor who specialises in director defence and misfeasance claims — not just a general insolvency practitioner. The nuances of these cases demand specific expertise.
Do Not Communicate Directly with the Liquidator
Anything you say to a liquidator or their solicitors can be used against you. Let your advisor handle all communications from this point forward.
Consider Your Wider Position
A misfeasance claim rarely exists in isolation. There may be personal guarantee claims, director disqualification risks, or other insolvency-related issues that need to be addressed simultaneously.
How We Can Help
We have over 60 years of combined experience helping directors navigate the complex aftermath of company insolvency. Our team understands that every situation is unique, and we provide straightforward, honest advice tailored to your specific circumstances.
We don't just tell you what you want to hear — we tell you what you need to hear. Whether that means mounting a robust defence, negotiating a settlement, or exploring alternative resolution strategies, we are by your side every step of the way.
Our free, confidential consultation is an opportunity to discuss your situation with someone who genuinely understands what you are going through — without judgment, and without obligation.