Misfeasance claims against directors

Section 212 is procedural: it gives a fast route to enforce duties that already exist, mainly the directors' duties in the Companies Act 2006 and the duty to safeguard company property. The recurring real-world examples are dividends paid without distributable profits (unlawful dividends), drawings left as an overdrawn director loan account, transferring assets to a new company or connected person at undervalue, paying off personally guaranteed or connected debts ahead of other creditors, and simply taking company cash. Once a company is insolvent, directors must treat creditor interests as paramount, so payments that were routine while solvent can become misfeasance in the run-up to failure.

Section 212 only operates once a company is in winding up. The application can be made by the official receiver, the liquidator, any creditor, or a contributory (shareholder) with the court's permission. In practice liquidators bring most claims, funded from the estate or by litigation funders, and many are settled rather than tried. The remedy is compensatory, not punitive: the court can compel the director to "repay, restore or account for the money or property" with interest, or to "contribute such sum to the company's assets by way of compensation... as the court thinks just" (s212 IA 1986).

The main lines of defence are that the payment or transaction was proper (authorised, at market value, in the company's interest at the time), that the director acted honestly and reasonably and ought fairly to be excused, which the court has power to grant under section 1157 of the Companies Act 2006, or that the loss claimed did not flow from the conduct. Contemporaneous records matter enormously: board minutes, valuations and professional advice taken at the time are usually the difference between an allegation and a recovery. Denying everything while the paperwork shows cash leaving the company rarely ends well.

Misfeasance (s212) targets specific improper transactions; wrongful trading (s214) targets carrying on trading past the point of no return; both can be pleaded in the same proceedings, and the same conduct can also support disqualification under the CDDA 1986 and, since 2015, a compensation order. A director worried about any of these should take advice before the liquidator's interview, not after. If money has been moved recently, undoing or documenting it early is far cheaper than litigating it later.