Misfeasance Claims / Breach of Fiduciary Duties

As director owes duties of care as an Officer to the Company. The director owes a fiduciary duty to act in the bests interests of the Company.

The Companies Act 2006 at sections 170 to 177 set out the scope of director’s obligations to the Company which may be summarised as –

• The director must not act beyond the scope of his/her powers
• The director must by his/her actions promote the success of the Company
• The director must exercise independent judgement
• The director must exercise reasonable, skill, care and judgement in the performance of his functions
• Conflicts of interest must be avoided
• There is a duty not to accept benefits from third parties
• Any personal interest in proposed transactions or arrangements should be declared

A Liquidator or Administrator can issue summary Court proceedings as a redress against a delinquent director where any of those duties have been breached. This power is set out in s212 Insolvency Act 1986.

The liquidator will be seeking an Order of the Court that the former director pay, restore, or account for any money (together with interest) that the Court thinks just.

Misfeasance proceedings require careful handling right from the very start. If the former director receives notification that a Liquidator is considering bringing a claim pursuant to s212 he/she ought to be aware that any communication with the Liquidator or their lawyers will be a matter of record for any Court proceedings.

Therefore, the former director should consider all the following as a matter of priority –

• The next step should be to consult your own lawyers
• Consider whether a full response to the claims is possible or whether disclosure of material held by the Liquidator is necessary
• Can the Liquidator be blamed or held to account in any way?
• What evidence rebutting the allegations can the former director pull together?
• Consider the commercial pressures on the Liquidator: Are their lawyers acting under a no win no fee agreement? Does the Liquidator have an After The Event insurance policy? What cash resources does the Liquidator have?
• As the former director – what is your known and discoverable asset base?
• Consider the prospects of winning in Court v settling on a commercial basis

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