Misfeasance claims – Section 212 of the insolvency act 1986

When the company becomes insolvent it often results in various disputes. These disputes cannot only be between Directors and Shareholders of the Company but also with external businesses. The purpose of this article is to deal with claims which can be made by a liquidator of the company.

The Liquidator is concerned mostly with the ‘asset realization’ in order that a distribution can be made to the unsecured creditors of the company. As part of his or hers remit in dealing with the ‘asset realization’ of the insolvent company he would investigate certain former transactions against the Directors.

The process normally begins with the requested books and records from the Director of the Company. If there are more than one Director in the Company, then this request is made personally to all Directors. The first reconciliation is to investigate the transactions of the Company which are used to determine whether there are any outstanding Director’s loan accounts. The collection of this data allows the Liquidator to formally request that the Directors provide full clarification around their findings.

The Liquidator will also investigate if the behaviour of the Directors was in the best interest interests of the company. If there are question marks over the way in which the Directors have conducted themselves, the Liquidator may consider instigating legal proceedings under Section 212 of the Insolvency Act 1986. For these claims to be successful the Liquidator would need to show there is a clear case of misfeasance by the Directors.

Conclusion

Statistically, claims against Directors under Section 216 are a costly exercise for Liquidators to pursue and will mostly end up with hefty legal costs. It is best to consider mediating with the Liquidator to bring an early conclusion to any action being taken.

Next Step

If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.

This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.