What Is Misfeasance? A UK Director’s Guide to Duties, Risks, and Claims

Misfeasance is a breach of your duties as a director. Under section 212 of the Insolvency Act 1986, the liquidator can bring a misfeasance claim against you to recover any loss the company suffered as a result of that breach. It is a personal liability. Dissolving the company does not end it: the company can be restored to the register so that a claim can be brought.

We find that most directors have never heard the word “misfeasance” until the liquidator mentions it. It is not a separate offence. It is the enforcement mechanism for breaches of the seven general duties you owe as a director under the Companies Act 2006.

If you breached any of those duties (failed to exercise reasonable care, prioritised your own interests, declared conflicted dividends, approved transactions that were not in the company’s interests) and the company suffered a loss, section 212 lets the liquidator pursue you for that loss.

Quick Answer: What Is a Misfeasance Claim?

A misfeasance claim under section 212 allows the liquidator, the official receiver, any creditor, or a shareholder with the court’s permission to apply to the court for an order that a director who has breached their duties must: (1) repay or restore money or property to the company, (2) account for any personal profit made from the breach, or (3) contribute to the company’s assets as compensation for the loss caused.

We stress that misfeasance is a civil claim, not a criminal charge. You pay money. The misfeasance claim itself does not send you to prison, although the same conduct can sometimes also be a separate criminal offence.

But the amounts can be substantial. We have seen misfeasance claims for six-figure sums where a director authorised transactions that benefited themselves at the company’s expense. The claim is separate from and in addition to any wrongful trading or disqualification proceedings.

Common Grounds for Misfeasance Claims Against Directors

We see misfeasance claims brought on these grounds most frequently:

• Unlawful dividends. Dividends declared when the company did not have sufficient distributable reserves under section 830 of the Companies Act 2006. The liquidator recovers the dividend as money that should never have been paid out.
• Excessive director remuneration. Paying yourself a salary or bonus that was disproportionate to the company’s financial position, particularly in the period approaching insolvency. We see directors who doubled their salary in the final year of trading, knowing the company was struggling.
• Undeclared conflicts of interest. Transactions where the director had a personal interest that was not properly declared and authorised. The liquidator recovers any profit the director made from the conflicted transaction.
• Transactions at undervalue with connected parties. Selling company assets to yourself, family members, or associated companies below market value. The liquidator recovers the difference between the sale price and the market value.
• Failure to exercise reasonable care and skill. Approving a transaction without proper due diligence, failing to obtain professional advice when it was needed, or ignoring warning signs that a competent director would have acted on.
• Overdrawn director’s loan accounts. Where the withdrawals breached the Companies Act loan provisions or were not properly authorised.

We find that misfeasance claims are often brought alongside wrongful trading claims. The wrongful trading claim covers the period of continued trading. The misfeasance claim covers specific transactions within that period. Together, they can produce a combined personal liability significantly larger than either claim alone.

Misfeasance vs Wrongful Trading: The Director’s Difference

Both are civil claims under the Insolvency Act. Both create personal liability. But they cover different things:

• Misfeasance (section 212): Covers specific breaches of duty, particular transactions, decisions, or failures. The claim recovers the loss caused by the specific breach.
• Wrongful trading (section 214): Covers continued trading after the point when you knew, or ought to have concluded, that the company could not avoid insolvent liquidation or insolvent administration. The claim recovers the increase in the company’s net deficiency during the period of wrongful trading.

A director can face both. A misfeasance claim for an unlawful dividend paid in March, AND a wrongful trading claim for continued trading from January to June. The claims can be added together, but the court will not make you pay twice for the same loss.

Who Can Bring a Misfeasance Claim Against a Director?

Section 212 allows claims to be brought by: the official receiver, the liquidator, any creditor of the company, or a contributory (shareholder) with the court’s permission. In practice, the liquidator brings most misfeasance claims because they have access to the company’s records and the duty to investigate.

We see creditor-brought misfeasance claims occasionally, particularly where the liquidator has decided not to pursue a claim (perhaps because the estate cannot fund the litigation) and a large creditor decides to pursue it independently.

Time Limits for Misfeasance Claims

Most misfeasance claims must be brought within 6 years of the breach itself, not of the liquidator’s appointment. There is no time limit at all where the director was party to fraud, or received or still holds company money or property. Deliberate concealment of the breach can also delay the start of the 6 years.

We tell directors: do not assume old transactions are safe. The liquidator reviews the full trading history and can pursue claims going back years. A conflicted transaction from 2019 can still be pursued in a 2026 liquidation if you took company money or property from it.

How Directors Can Defend Against a Misfeasance Claim

• Show the decision was reasonable at the time. Misfeasance is assessed against the information available when the decision was made, not with hindsight. If you took professional advice and acted on it, that is a strong defence.
• Show proper authorisation. If the transaction was properly declared, authorised by the board, and documented in the minutes, the procedural compliance supports your position.
• Show no loss. If the company did not suffer a loss from the alleged breach, a compensation claim may fail. But if you made a personal profit from the breach, you can still be ordered to hand it over. The claimant must prove the claim, but if you received company money, you will need to show the payment was proper.
• Section 1157 relief. The court can relieve a director from liability if they acted honestly and reasonably and ought fairly to be excused. This is a discretionary power, not a guarantee, but it provides a safety valve for directors who made honest mistakes.

We advise directors facing a misfeasance claim to instruct a solicitor who specialises in insolvency litigation. Misfeasance claims are fact-intensive and the defence depends on the specific circumstances. A specialist can assess the strength of the claim and advise on whether to defend, negotiate, or settle.

How Directors Can Prevent Misfeasance Claims

1. Know your duties. The seven general duties under the Companies Act are the standard you are measured against.
2. Document every significant decision. Board minutes that record what was decided, what information was considered, and what advice was taken.
3. Declare conflicts. Every interest in every transaction, formally, in the minutes.
4. Do not pay dividends without confirming distributable reserves. Get your accountant to confirm the position before declaring.
5. Seek professional advice before making unusual decisions. A valuation before selling an asset. Legal advice before entering a connected-party transaction. Insolvency advice before the company enters the twilight zone.

Company Debt’s licensed insolvency practitioners can assess your misfeasance exposure. A confidential consultation will identify whether any past decisions create risk and what you can do about it.

FAQs on Misfeasance and Director Liability