Director misfeasance is a term used to describe the conduct of a director where they may have misused company assets or breached duties owed to the company. Ordinarily, misfeasance arises in the context of insolvency, where the liquidator of an insolvent company may seek to recover losses caused by the director's misconduct.
A misfeasance claim is not a standalone duty but rather a mechanism through which breaches of directors' duties owed to the company can be pursued. The duties typically relied upon are those contained in sections 171 to 177 of the Companies Act 2006. You can learn more about directors’ duties in our earlier blog “Directors’ duties in 2026: What every board member needs to know."
Common examples of conduct that may give rise to a misfeasance claim include:
- Transactions at an undervalue;
- Unlawful distributions or dividends;
- Preferential payments to creditors; and
- Failing to exercise reasonable care, skill and diligence in managing the company's affairs.
Under section 212 of the Insolvency Act 1986 ("IA 1986"), the court may examine the conduct of any person who has taken part in the promotion, formation, or management of a company and who has:
- Misapplied or retained company money or property.
- Been guilty of misfeasance; or
- Breached any fiduciary or other duty owed to the company.
Where such conduct is established, the court has a number of options available to it to remedy the misfeasance and may order the director to repay, restore or account for the money or property concerned. The remedies for misfeasance are principally compensatory rather than punitive, to restore the company to the position it would have been in had the breach(es) not occurred.
In Re BHS Group Ltd (in liquidation) the court brought to the forefront of directors’ duties that there is importance of creditors interests in times of financial distress and giving weight to those interests in light of financial difficulties. Directors should always exercise their reasonable care, skill, and diligence when it comes to decisions as to finances when the company is in a precarious position.
In summary, director misfeasance encompasses a wide range of acts and omissions involving the misuse of company assets and/or breaches of duties owed to the company by director. Directors of companies experiencing financial difficulties must exercise considerable caution, as failures to act in the interests of creditors or to comply with their statutory duties could expose them to personal liability and claims for compensation.
For assistance and advice with a commercial law issue call our team us on 0161 696 6170 or complete our online enquiry form.
Comments