A misfeasance claim is the main way a liquidator recovers money from a director who misapplied company assets or broke their duties. Section 212 of the Insolvency Act 1986 lets the court examine the director’s conduct in a winding up and order them to repay, restore or account for money or property with interest, or to pay compensation into the company’s assets. Whatever is recovered goes into the liquidation for the benefit of creditors.

What is a misfeasance claim?

A director’s duties are owed to the company, so a claim for breach belongs to the company. While a business is trading, the board decides whether to sue, which rarely happens when the people at fault control the board. Once the company is being wound up, the liquidator can take those claims forward. The Insolvency Service’s technical guidance for official receivers (paragraph 32.32) explains that a company can sue a director at common law for negligence, misfeasance, breach of statutory duty or breach of fiduciary duty, and that section 212 provides a mechanism for those claims to be brought by creditors, contributories, the official receiver or the liquidator.

Section 212(1) applies where, in the course of a winding up, it appears that a person has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company. It is a summary procedure for enforcing duties that already exist, including the general duties in the Companies Act 2006 explained in our guide to directors’ duties.

Who can be pursued, and who can bring the claim?

Section 212(1) covers anyone who is or has been an officer of the company, anyone who has acted as its liquidator or administrative receiver, and anyone else who has been concerned or taken part in its promotion, formation or management. Paragraph 32.35 of the official receivers’ guidance confirms the provisions apply to shadow directors, de facto directors and company secretaries, and that a compensation order may be apportioned between directors as the court sees fit.

Under section 212(3) the application can be made by:

  • the official receiver;
  • the liquidator;
  • any creditor; or
  • any contributory, but only with the leave of the court (section 212(5)), although a contributory can apply even if they will not benefit from the order.

One practical point for funding: section 246ZD allows a liquidator or administrator to assign claims for fraudulent trading, wrongful trading, transactions at an undervalue, preferences and extortionate credit transactions, including their proceeds. Section 212 is not among the claims listed there.

What conduct counts as misfeasance?

Paragraph 32.38 of the official receivers’ guidance gives examples, each drawn from decided cases:

  • receiving money or other benefits from the company, beyond proper pay for services, that caused the company a material loss;
  • authorising payments or transfers of property to themselves or connected persons that caused a loss;
  • improper investment or payment of the company’s money;
  • being responsible for dividends paid out of capital or otherwise unlawful distributions;
  • failing to disclose dealings that used company assets, or an interest in property the company bought;
  • selling or transferring company property outside the normal course of business at a material loss;
  • failing to introduce a proper accounting system;
  • paying redundancy that was not due; and
  • signing an insurance proposal without reading it.

Elsewhere the guidance says that allowing or failing to stop unreasonable remuneration might be misfeasance (paragraph 32.49), and that authorising or failing to stop an unlawful dividend is misfeasance (paragraph 32.64). Paragraph 32.40 adds that a director is treated as a trustee of company property under their control, and must make good any resulting loss and any personal gain if they misapply it.

What can a director be ordered to repay?

Section 212(3) gives the court two powers. It can compel the person to repay, restore or account for the money or property, or any part of it, with interest at whatever rate the court thinks just. Or it can order them to contribute whatever sum the court thinks just to the company’s assets as compensation for the misfeasance or breach of duty.

Paragraph 32.34 of the guidance stresses that the aim is compensation for the company’s loss, not punishment. Two further points often surprise directors:

  • No set off. Paragraph 32.41 says a sum the court orders a director to pay cannot be set off against money the company owes that director, such as unpaid salary or a credit balance on their loan account.
  • Debts are separate. Paragraph 32.30 treats a director who owes the company money, for example through an overdrawn director’s loan account, as a debtor. That is recovered as a debt, alongside any misfeasance claim.

Can a director be excused?

Section 1157 of the Companies Act 2006 lets the court relieve an officer wholly or partly from liability for negligence, default, breach of duty or breach of trust if they acted honestly and reasonably and, in all the circumstances, ought fairly to be excused. Under section 1157(2) an officer who expects a claim can apply for relief in advance.

Paragraph 32.39 of the guidance says the court may reduce the compensation if the director acted on professional advice, but is unlikely to grant relief that would leave the director benefiting from the loss caused to the company or its creditors. The director can seek a contribution from the advisers in those circumstances.

Paragraph 32.33 tells the official receiver to check that a breach has not been sanctioned by the company. Approval after the event must follow section 239, where the director’s own votes, and those of connected members, do not count; our guide to ratifying directors’ breaches covers the detail. Once a company is in financial difficulty, the interests of creditors also come into play, as explained in our page on the creditor duty.

How does misfeasance compare with other claims against directors?

The Insolvency Service’s director information hub lists wrongful trading, fraudulent trading, misfeasance and compensation orders among the ways a director of an insolvent company can become personally liable.

Claim Who brings it What has to be shown
Misfeasance, section 212 Insolvency Act 1986 Official receiver, liquidator, creditor or contributory (with leave) Misapplication of company money or property, or breach of a fiduciary or other duty
Fraudulent trading, section 213 Liquidator Business carried on with intent to defraud creditors or for a fraudulent purpose; anyone knowingly party can be liable
Wrongful trading, section 214 Liquidator The director knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation and did not take every step to minimise creditors’ loss
Compensation order, section 15A Company Directors Disqualification Act 1986 Secretary of State The person is disqualified and the conduct behind the disqualification caused loss to creditors; application within two years of the order or undertaking

A liquidator will often plead several of these together. Our guides to wrongful trading and unlawful dividends cover two of the most common companions to a misfeasance claim.

How might a claim look in practice?

Illustration only. A small trading company goes into creditors’ voluntary liquidation. The liquidator’s review of the books finds three things in the final year:

  1. a £20,000 dividend paid when management accounts showed accumulated losses;
  2. £12,000 paid to a company owned by the director’s spouse for “consultancy” with no evidence of any work; and
  3. an overdrawn loan account of £8,000.

The liquidator demands the £8,000 as a debt. The dividend and the consultancy payments are put forward as misfeasance under section 212, citing the guidance examples of unlawful distributions and payments to connected persons. The director replies that the company still owes him £5,000 of unpaid salary and that he should only pay the difference. Under paragraph 32.41 that set off is not allowed: he must pay the misfeasance award in full and claim his £5,000 alongside the other creditors. If he can show he relied on written advice from his accountant that the dividend was lawful, he can ask the court for relief under section 1157, but relief is unlikely to extend to money that ended up with his own family.

What mistakes leave directors exposed?

  • Assuming resignation ends the risk. Section 212(1)(a) covers anyone who is or has been an officer.
  • Relying on solvency when a dividend was paid. Paragraph 32.64 notes that solvency at the time is irrelevant to whether a distribution was unlawful.
  • Approving their own pay without challenge. Unreasonable remuneration can be misfeasance under paragraph 32.49.
  • Poor bookkeeping. Failing to introduce a proper accounting system is one of the listed examples, and missing records make every other defence harder to prove. See our page on the duty to keep accounting records.
  • Not keeping evidence of advice. Relief under section 1157 and paragraph 32.39 depends on proving the director acted honestly, reasonably and on proper advice.

Misfeasance findings can also feed into an investigation of the director’s conduct for disqualification purposes, covered in our guide to director disqualification.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.