Successfully Reducing Misfeasance Claims Against Directors
Misfeasance Claims are increasing. We are specialists in defending directors against misfeasance claims, which are often made by liquidators alleging that the specific conduct of a director constitutes misfeasance and therefore a breach of the statutory duties owed by the director to the company and its creditors, under section 212 of the Insolvency Act 1986. This article looks at two of our recent misfeasance claims cases, one of which is on-going, showing how we advised our clients.
Misfeasance Claim Case Study 1
In this case the director was facing a misfeasance claim from a liquidator, alleging that the director caused preference payments of c.£82,000 to be made. Specifically, the liquidator alleged that the director caused and allowed loan repayments to be made to himself and his wife in the 2 years before the company was placed into compulsory liquidation.
Our Advice to This Director – Settle Quickly and Avoid Litigation
This case is of particular interest, because although we believed there was a defence that existed based on the facts, there was a lack of documents available to the director to corroborate his explanations to us. This meant that a commercial approach had to be taken, and we advised the director to offer a much reduced sum to the liquidator to buy off the risk and costs consequences of litigation.
That is precisely what happened. Although the director had to make a payment of about 30% of the sum claimed (albeit phased over time) to rid himself of the claim, it also provided certainty to the director and his family and avoided the worry, expense and uncertainty of High Court litigation.
Misfeasance Claims – Case Study 2
In this on-going case, we are advising a director of a failed company who is facing a misfeasance claim by a liquidator for the sum of £370,000. The liquidator is alleging that Preference Payments (see section 340 Insolvency Act 1986) were received by the director or caused to be made by the director to third parties during the period leading up to liquidation.
The liquidator was also seeking repayment in respect of an overdrawn director’s loan account and unexplained transactions and payments to connected third parties, totalling a further £94,000, with the claim’s grand total being £464,000.
Our Response to the Claims
We investigated the position with the director and responded to the liquidator’s solicitors in a detailed letter of representations, rebutting and answering the liquidator’s claims.
Through these representations we were able to demonstrate that the investigations carried out by the liquidator were seriously flawed and insufficient. The books and records delivered up to the liquidator clearly demonstrated that the third party payments were entirely legitimate and made within the company’s ordinary course of business.
In addition, the liquidator was not surprised to hear the harsh reality of matters, namely that the director did not have £467,000 sitting around to pay out. In the event, the liquidator did not (as threatened) commence High Court litigation. Instead, we convened and attended a meeting with the liquidator and his solicitor, and reached a commercial settlement at about 30% of the amount claimed.
A Structured Settlement Over Time Was Agreed
Once the settlement was agreed, we negotiated a time to pay agreement, so that the director was given 1 year (from the date of the settlement) to sell or re-mortgage residential property owned by him/his family. In the meantime, the liquidator took a voluntary charge over a property, to secure his position pending payment.
In our experience, the quicker we are contacted by directors facing misfeasance claims against them, the more likely it is that we can help.
If you are facing a misfeasance claim, contact us or call us on 0121 200 7040 for a free initial discussion to see if we can help.