What is misfeasance in insolvency?

Misfeasance refers to misconduct or a breach of duty by directors in the period leading up to insolvency. Examples include misusing company money, paying dividends illegally, or failing to maintain accurate records. In liquidation, the liquidator can bring a misfeasance claim against directors to recover losses for creditors. Directors found guilty may be required to repay money personally, face disqualification, or both. Misfeasance is often identified through liquidator investigations, particularly when financial transactions appear suspicious or unfairly disadvantage creditors. Directors can avoid misfeasance claims by acting transparently, keeping accurate records, and always prioritising creditor interests once insolvency becomes likely. Courts recognise that directors may make mistakes, but deliberate or reckless breaches of duty are treated seriously. Misfeasance highlights the importance of good governance, even in times of financial distress.