What Is Misfeasance And Breach Of Duty By Directors?

What Happens If You Are In Breach Of Duty Or Trust?

If a director has misapplied or retained any property of the company then on an application to court as to that fact a director can be compelled to repay, restore or account for the money or property of the company and thereby contribute via payment of compensation towards the assets of the company for the loss and or damage caused.

The availability of a remedy to address misfesasance is set out in Section 212 of the Insolvency Act 1986. A claim under this section can be brought by a company in liquidation through its liquidator.

This can commonly arise where Directors personally have benefitted at the expense of their companies. In a misfeasance claim whereit is proved that a director is himself the recipient of a benefit from the company, the evidential burden is then on him to prove that the payment was proper as was set out in the case of Hellard & Anor (Liquidators of HLC Environmental Projects Ltd) v Carvalho [2013] EWHC 2876 (Ch).

The underlying principle is that directors are not free to take action which puts at real (as opposed to remote) risk the creditors’ prospects of being paid, without first having considered their interests rather than those of the company and its shareholders. If, on the other hand, a company is going to be able to pay its creditors in any event, ex hypothesi there need be no such constraint on the directors. Exactly when the risk to creditors’ interests becomes real for these purposes will ultimately have to be judged on a case by case basis. Different verbal formulations may fit more comfortably with different factual circumstances.