Misfeasance – breaches of fiduciary duties

Whilst a limited company usually means that there is limited liability, especially for the office holders, there are certain circumstances when it is possible to pierce the corporate veil and pursue past and present officers of the company personally.

Misfeasance, as defined under the Insolvency Act 1986, occurs when in the winding up of a Company, a person who is/has been an officer of the company, or who is/has been concerned with or taken part in the promotion, formation or management of the company, has:

  • misapplied or retained, or become accountable for any money or other property of the company, or
  • has been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.

Examples of misfeasance include:

  • money or property belonging to a company being mis-applied or retained by a director or officer
  • preferential payments made to creditors
  • unlawful dividends being paid to shareholders
  • actions taken to avoid payment of VAT by a company.

The burden of proof lies with the claimant and claims must usually be brought within a six-year period from when the breach took place. However, where a director has utilised company money for his own benefit, then there is usually no limitation period.

There are also associated claims for breach of statutory duties pursuant to the Companies Act 2006.

Where the Court considers that misfeasance has taken place, the Court can compel a defendant to:

  • repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or
  • contribute such sums to the company’s assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the Court thinks fit.

Relief from liability for a misfeasance claim can be sought if the defendant acted honestly and reasonably and ought fairly to be excused. The Duomatic principle may also be available as a legitimate defence.

Our Restructuring, Turnaround & Insolvency Team has extensive experience both in pursuing and defending misfeasance/breach of duty actions and can provide expert assistance in this area.