What is misfeasance?
Misfeasance refers to the improper performance of a lawful act or duty. Unlike malfeasance (which involves doing something wholly wrongful and unlawful) or nonfeasance (which involves failing to act when there is a duty to act), misfeasance involves performing a legal duty or exercising legal authority improperly or in a way that causes harm to another party.
In UK law, misfeasance is most commonly addressed in two contexts:
Misfeasance in public office - a tort concerning the improper exercise of power by a public official
Misfeasance by company directors - a breach of fiduciary duties owed to a company, especially where the business is or may be insolvent, under the Insolvency Act 1986
Section 212 - Insolvency misfeasance
Misfeasance is the umbrella legal term used for a range of potential situations which may lead to a claim brought against a director under section 212 of the Insolvency Act 1986, usually by a liquidator after a company has gone into liquidation.
Section 212 provides a way for the court to make a director personally account for company money or property they have misapplied or retained, or compensate the company where they have breached their duties. It is therefore best understood as an umbrella procedure covering a number of different types of alleged misconduct, rather than one specific offence.
For example, a liquidator investigating a failed company may find that £100,000 was paid to a director, dividends were paid when there were insufficient profits, or company assets were transferred to another business connected with the director. The underlying allegation might be breach of duty, misuse of company assets or another form of wrongdoing. Section 212 provides the mechanism through which the liquidator can ask the court to recover the money or compensate the company.
In practice, some of the most common issues investigated include:
Payments or withdrawals by directors which the liquidator says were not properly due or authorised.
Director's loan accounts where substantial sums remain outstanding, although these may also be recoverable simply as debts owed to the company.
Unlawful dividends, particularly where there were insufficient distributable profits.
Company assets sold or transferred at an undervalue, especially to directors, shareholders or connected businesses.
Company money or property used for personal benefit.
Transactions involving connected businesses or individuals which are alleged to have disadvantaged the company.
Conflicts of interest or other breaches of directors' duties, such as diverting business opportunities or making an undisclosed personal profit.
Not everything investigated following an insolvency is technically a section 212 misfeasance claim. The same circumstances can give rise to separate claims involving transactions at an undervalue, preferences, wrongful trading or fraudulent trading. A liquidator may pursue several different claims against a director at the same time.
What are the consequences of a misfeasance claim?
The principal risk is personal financial liability. If a section 212 claim succeeds, the court can require a director to repay or restore money or property or contribute compensation for the loss caused. Depending on what happened before the insolvency, the amount at stake can range from relatively modest payments to hundreds of thousands or millions of pounds.
There may also be significant legal costs and, depending on the underlying conduct, separate risks such as director disqualification. Particularly serious allegations involving dishonesty can potentially result in criminal investigation.
A demand from a liquidator does not mean that liability or the amount claimed has been established. Important questions can include whether the payment was properly authorised, what the company's financial position was at the time, what the director knew, whether professional advice was obtained, whether the company received value in return and whether the alleged breach actually caused the loss claimed.
The first step is therefore to establish what the liquidator says the director did wrong, whether section 212 or another insolvency provision is being relied upon, the evidence supporting the allegation and the amount genuinely at risk.
Civil or criminal law?
Civil Proceedings are the norm with misfeasance with the majority of cases being civil claims. Criminal Proceedings are generally reserved for the most serious cases involving fraud, theft, or false accounting and are typically pursued in parallel with civil recovery actions. Criminal cases are usually initiated by the Serious Fraud Office, FCA, or police following referral.
How We Can Help
We have experienced specialists in insolvency disputes, commercial litigation and also criminal law, who often work together as misfeasance may just be 1 potential claim of many.
We act for companies, directors, shareholders, insolvency practitioners and creditors involved in misfeasance matters. Whether bringing a claim or defending one, we provide balanced, experienced support tailored to the specific circumstances and the client’s commercial objectives.
Misfeasance in public office
Misfeasance in public office is a serious legal claim made when someone in a position of public power acts unlawfully and causes harm. It’s not about simple mistakes or poor decisions. It’s about misusing power on purpose or with serious disregard for the consequences such as :-
Exercising discretionary powers for an improper purpose
Targeted malice against an individual or group
Acting with knowledge that the action will cause harm
Procedural Impropriety
Making decisions without following required procedures
Failing to consider relevant factors or considering irrelevant factors
Acting beyond the scope of lawful authority
