A misfeasance claim against a director is a court application by a liquidator to make a director personally repay money or property lost through a breach of their duty to the company. It is brought under Section 212 of the Insolvency Act 1986 and can result in a repayment order, not a criminal conviction.
If your company has gone into liquidation and the liquidator has written to you about your conduct, it is natural to worry about what happens next. This guide explains what misfeasance means, how a claim is brought, and what your options are if one is raised against you.
What misfeasance means in insolvency
Misfeasance is the legal term for a breach of duty, trust or a misapplication of company money or property by a director, former director, liquidator, administrator or other officer of the company. It is not a separate crime — it is a civil route that lets a liquidator ask the court to put things right.
A misfeasance claim against a director usually follows one of these breaches:
- Taking money out of the company that it could not afford to pay.
- Using company assets for personal benefit.
- Failing to act in the company's best interests once it became insolvent.
- Paying one creditor in preference to others, or moving assets away from the company unfairly.
The Section 212 summary remedy explained
Section 212 of the Insolvency Act 1986 gives a liquidator (or the Official Receiver) a quick, summary way to bring a claim, rather than starting fresh civil litigation. It applies to anyone who has been a director, officer, liquidator, administrator or receiver of the company.
The liquidator applies to the court, sets out the alleged breach and the loss caused, and asks the court to order repayment. The process is generally faster and less costly than an ordinary breach-of-duty claim, though the court can still order full disclosure and hear evidence from both sides.
Section 212 does not create new legal duties — it enforces existing ones, including the general duties of directors under the Companies Act 2006 and the duty to act in creditors' interests once insolvency is likely.
Examples: excessive drawings, misapplied assets, unlawful dividends
Common examples that lead to a misfeasance claim against a director include:
- Excessive drawings — taking salary, dividends or director's loan repayments the company could not sustain, especially once it was insolvent or close to it.
- Misapplied assets — selling or transferring company property below market value, often to a connected party or a new company.
- Unlawful dividends — paying dividends out of profits the company did not actually have, which can be reclaimed even years later.
- Diverting business — moving contracts, customers or stock to another company you control, to the detriment of creditors.
These issues often surface alongside other concerns, such as preference payments before liquidation, where one creditor was put in a better position than others shortly before the company failed.
What a court can order you to repay
If a misfeasance claim succeeds, the court can order the director to:
- Repay the money misapplied, with interest.
- Restore the specific property taken or its equivalent value.
- Contribute a sum to the company's assets to compensate for the loss caused.
The order is against the director personally, so it is not limited to whatever they invested in the company. This is one of several ways a director can end up personally liable — see our guide on personal liability for company debts for the wider picture, including wrongful trading and personal guarantees.
Who brings the claim and when
Only the liquidator, administrator, or the Official Receiver can bring a misfeasance claim — not individual creditors directly, although a creditor's concerns often prompt the investigation. The liquidator has a statutory duty to investigate the conduct of directors, and their findings feed into a formal director conduct report submitted to the Insolvency Service.
Claims are usually brought once the liquidator has reviewed the company's books, bank statements and asset history, which can take several months after the liquidation begins. There is no fixed deadline to start proceedings, though the general limitation rules mean claims are typically brought within six years of the breach, sometimes longer for concealed or fraudulent conduct.
How to defend or settle a misfeasance claim
Receiving correspondence about a possible misfeasance claim against a director is stressful, but there are usually options before a matter reaches court:
- Respond promptly and factually — set out the business reasons behind the decisions being questioned.
- Gather evidence — board minutes, accounts, advice received at the time and bank records can all support your position.
- Consider a negotiated settlement — many claims are resolved by agreement, avoiding the cost and uncertainty of a hearing.
- Get specialist representation — a solicitor experienced in insolvency litigation can assess the strength of the claim and advise on the best route forward.
Acting early, before positions harden, generally gives you more room to negotiate a proportionate outcome.
Frequently asked questions
Is misfeasance the same as wrongful trading?
No. Wrongful trading concerns continuing to trade after there was no reasonable prospect of avoiding insolvent liquidation. Misfeasance concerns a specific breach of duty or misapplication of money or property. The two can overlap in one liquidation but are legally distinct claims.
Can insurance cover a misfeasance claim?
Directors' and officers' (D&O) insurance may cover legal costs and, in some cases, the sum ordered to be repaid, though policies commonly exclude claims involving dishonesty or fraud. Check your policy wording and notify the insurer as soon as a claim is raised.
How far back can a liquidator go?
There is no single fixed limit. Ordinary breach-of-duty claims are generally subject to a six-year limitation period, but this can be extended where the conduct was concealed or involved fraud. Liquidators typically focus on the period leading up to and following the onset of insolvency.
What happens if I cannot repay the amount ordered?
The court order is a personal debt. If it cannot be paid, the liquidator or Official Receiver may pursue enforcement action, including bankruptcy, in the same way as any other unpaid judgment debt.
Does a misfeasance claim affect director disqualification?
It can. Conduct that leads to a misfeasance claim is often also reported to the Insolvency Service and considered as part of any director disqualification proceedings, though the two processes are separate.
This article is general information, not legal, financial or insolvency advice, and every liquidation is different — directors should speak to a regulated specialist about their own circumstances.
If you would like to talk it through, Harbourfirst can introduce you to a regulated insolvency specialist — start an enquiry.