Breach of Duty and Misfeasance
Company directors have a duty to act for the benefit of their company rather than themselves. Knowing when this line has been crossed is not always straightforward and can lead to tough questions following insolvency of a company, as well as potential claims for breach of duty and misfeasance.
Any director who is facing claims of misfeasance or breach of directors’ duties following insolvency of their company would be wise to seek expert advice. It can also be sensible to seek such advice in the early stages of an insolvency if you have any concerns about your actions being scrutinised by an insolvency practitioner.
At Isadore Goldman, we have extensive experience supporting company directors facing claims for breach of duty and misfeasance during insolvency. We can swiftly assess your legal position, so you know exactly what the risks are. Where required, we can assist with answering any questions put to you and build a strong defence if a claim is brought.
Our expert legal team can support directors with matters including:
- Breach of fiduciary duty claims
- Misfeasance claims
- Antecedent transaction claims
- Overdrawn directors’ loan accounts
- Illegal dividend claims
We can also assist with many other types of claims against directors during insolvency.
For immediate, practical advice about dealing with breach of directors’ duties and misfeasance claims, please speak to our expert team today. You can get in touch at one of our offices in Portsmouth or London, or email info@isadoregoldman.com.
Why choose Isadore Goldman for help with director misfeasance and breach of duty claims?
Independently recognised expertise
Our insolvency law expertise has been recognised by high-profile client guides including Chambers & Partners and the Legal 500.
Clear, practical advice
Insolvency can be a scary and confusing time. We cut through the uncertainty by giving transparent, honest advice about your situation and any potential risks you are facing. You can then choose how to proceed with confidence.
Early resolutions often achievable
In many cases, our team can resolve director breach of fiduciary duty and misfeasance claims at an early stage by strategically collaborating with insolvency practitioners and other interested parties. This can save a lot of time, expense, stress and publicity.
Robust representation when needed
Where a favourable outcome cannot be negotiated, then we have the skills and experience to strongly represent our clients in formal legal proceedings. We will ensure your case is prepared immaculately and that you have the very best representation at all times.
Our director breach of duty and misfeasance expertise
Breach of fiduciary duty claims
We can advise company directors who are facing claims for breach of fiduciary duty in relation to an insolvency, including in the most complex and challenging circumstances. We can help to establish that no breach occurred or, where this is not possible, attempt to secure the minimum possible penalties.
Misfeasance claims
Our insolvency experts can assist with all types of misfeasance claims, including those related to transactions at an undervalue, preferential payments, concealing or removing assets, concerns about salary and failure to monitor the company’s financial situation.
Common questions about misfeasance and breach of directors’ duties
What is a director’s duty to a company?
Company directors owe various statutory duties to their companies:
- Acting within their powers as defined by the company’s constitution
- Promoting the success of the company
- Exercising their independent judgement
- Exercising reasonable care, skill and diligence when carrying out their role
- Disclosing potential conflicts of interest to fellow board members
- Declaring gifts or benefits from third parties
- Disclosing any direct or indirect interest in proposed or existing transactions or arrangements involving the company
While breach of directors’ duties claims are perhaps best known in relation to the duty to promote the success of the company, they can potentially be brought for breaching any of the duties listed above.
Are directors personally liable for breach of duty?
Yes, a company director can be held personally responsible if they are found to have breached one or more of their statutory duties.
What are the consequences of breach of directors’ duties?
A company director can face both civil and criminal action for a breach of duty, depending on the circumstances.
The company, its shareholders, its creditors and insolvency practitioners can all potentially make a claim against a director for breach of duty. Possible consequences of a successful claim include the director being required to:
- Pay any personal profit they have made to the company in restitution for any losses the company experiences due to the breach
- Restore any company property wrongly taken by the director to the company
- Pay damages to the company for any losses the company has experienced due to the breach of duty
The director could also be made subject to injunctive relief, which can prevent them from breaching their duties or continuing to do so if a breach has already occurred.
The company may also be able to rescind any contract signed by the director in breach of their duties.
What is misfeasance under UK law?
Misfeasance is a specific type of claim against a company director who is accused of breaching their fiduciary duty i.e. their responsibility to act in the best interests of another party or parties, such as the company’s creditors.
A misfeasance claim against a director can arise in relation to various actions taken by that director, such as:
- Incorrect preference in payments – where the director deliberately chooses to pay specific creditors without proper justification.
- Transactions at an undervalue – where a director allows business assets to be sold at less than their true value.
- Concealing or removing assets from the business – where a director attempts to hide company assets or remove them from the business to avoid them being sold as part of insolvency proceedings.
- Taking an unjustifiably high salary – where the director’s salary is higher than the company can support.
- Failure to properly monitor the company’s financial situation – where a director has not properly monitored the business’s finances and/or has not attempted appropriate action to manage any problems.
What are the consequences of misfeasance?
Following a successful misfeasance claim, a company director could be:
- Required to restore assets to the company
- Made to repay funds to the company
- Held personally liable for the debts owed by the company
- Disqualified from acting as a company director for two to 15 years
What is the difference between misfeasance, malfeasance and nonfeasance?
Misfeasance, malfeasance and nonfeasance are different issues that a company director could be accused of. Broadly, the three can be described as follows:
- Misfeasance – Where a director has carried out a lawful act, but in a way that is inappropriate or they did not follow the correct procedure or the act was carried out in an unlawful manner.
- Malfeasance – Where the director has carried out an unlawful act.
- Nonfeasance – Where the director has failed to carry out an action or actions that they were required to carry out as part of their legal responsibilities, whether intentionally or unintentionally.
What is a misfeasance claim in corporate insolvency?
A misfeasance claim is a legal action brought during a company’s insolvency against a director accused of misusing their position or breaching their duties to the company. It is not a separate offence but a summary procedure under section 212 of the Insolvency Act 1986 (a faster court route for claims the company could already bring). It commonly covers misapplied company money or property, or a breach of fiduciary duty. If you are facing one, our insolvency team can assess your exposure quickly.
What constitutes a breach of fiduciary duty by a company director?
A breach of fiduciary duty happens when you put your own interests ahead of the company’s or otherwise fail to act in its best interests. The core duties are set out in sections 171 to 177 of the Companies Act 2006 and include:
- Acting within your powers and for a proper purpose
- Promoting the success of the company
- Avoiding conflicts of interest
- Not accepting benefits from third parties
- Declaring any interest in a proposed or existing transaction
Whether conduct crosses the line often depends on the facts, so it is sensible to take advice early.
Who can bring a misfeasance claim against a director?
Usually the liquidator, but they are not the only ones. Under section 212, a claim can be brought by:
- The official receiver
- A liquidator
- A creditor of the company
- A contributory, such as a shareholder (with the court’s permission)
In practice, most claims follow an office holder’s investigation into the conduct of directors in the period before insolvency. If your decisions are being examined, we can help you respond.
Can I be held personally liable for a company’s debts under misfeasance?
Potentially, yes. Although a company is normally a separate legal entity, a successful misfeasance claim can require you to personally repay money, restore property or contribute compensation to the company’s assets. This is not automatic liability for every company’s debt. It is a court order to make good the specific loss or benefit linked to your conduct. Because the sums can be significant, it is wise to take advice as soon as a claim is raised.
What are the potential penalties for director misfeasance?
A misfeasance claim is mainly about compensating the company. If a claim succeeds, the court can order you to repay funds, restore assets or contribute to the company’s assets. In more serious cases, you may also face director disqualification for two to 15 years under the Company Directors Disqualification Act 1986 (CDDA), and separate criminal action is possible where dishonesty is involved. The right response depends on the allegations, which our team can review with you.
Are former directors still liable for breach of duty?
Yes. Resigning or leaving the company does not wipe out liability for decisions you made while in office. A claim looks at your conduct at the time, so former directors, and in some cases shadow or de facto directors (people who acted as directors without being formally appointed), can still be pursued. If you have left a company that is now insolvent, it is worth reviewing your position early.
How can a director defend against a misfeasance claim?
There are several possible defences, depending on the facts. You may be able to show that no breach occurred, that the company suffered no loss, or that your decisions were reasonable and made in good faith. The court also has power under section 1157 of the Companies Act 2006 to relieve a director from liability where they acted honestly and reasonably. Limitations and the strength of the evidence can matter too. We can help you build the strongest defence available.
What is the limitation period for bringing a misfeasance claim?
Usually six years, but there are important exceptions. Many breach of duty and misfeasance claims must be brought within six years under the Limitation Act 1980. However, there may be no time limit at all where the claim involves fraud, or where a director still holds company property or its proceeds, following the Supreme Court decision in Burnden Holdings (UK) Ltd v Fielding. Given the limitation is complex and fact-specific, you should not assume a claim is time-barred without advice.
How can Isadore Goldman help with a breach of duty allegation?
We support directors at every stage of a breach of duty or misfeasance allegation. We can assess your legal position quickly, help you respond to questions from an insolvency practitioner, and negotiate with office holders to resolve matters early where possible. Where a claim cannot be settled, we can represent you in formal proceedings. To discuss a breach of duty allegation in confidence, please contact our insolvency team using the details below.
Contact our experts for help with breach of duty and misfeasance claims against directors
For immediate, practical advice about dealing with breach of directors’ duties and misfeasance claims, please speak to our expert team today. You can get in touch at one of our offices in Norwich, Portsmouth or London, or email info@isadoregoldman.com.