Misfeasance

Misfeasance is a catch all claim by a liquidator against directors alleging wrongdoing which may have caused loss to the company.

It usually involves allegations of breach of fiduciary duty or breach of duties set out in the Companies Act 2006 including, allegations of paying unlawful dividends to shareholders, causing preferential payments to be made to connected parties, misapplying company assets or monies or trading at the expense of HMRC.

Allegations of misfeasance can also include suggestions that a director failed to act in the best interests of the company, for example, conflict of interest situations, having competing interests or diverting contracts or other business away from the company.

Specifically, section 212 of the Insolvency Act 1986 provides that if a director of a company that has gone into liquidation has misapplied or retained any of the company’s money or property; or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company, the court may compel that director to account for the relevant money or property, or to contribute such amount to the company’s assets as the court thinks just as compensation for the misfeasance or breach. The court may make such an order on the application of a creditor as well as the liquidator.

This provision does not create a new cause of action but essentially provides a summary procedure for breach of duty and/or misfeasance claims to be pursued. A creditor or insolvency office-holder can make use of this procedure, but a creditor has no direct claim for loss suffered against a director; rather a creditor would have to base a claim on loss suffered by the company (and its creditors generally, by extension).

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