What is misfeasance in liquidation?

Misfeasance occurs when directors breach their fiduciary duties, misuse company funds, or fail to act in creditors’ best interests, especially during the period leading up to insolvency. In liquidation, the liquidator has the power to investigate and bring misfeasance claims against directors. Examples include paying dividends when the company was insolvent, repaying loans to connected parties over other creditors, or failing to maintain accurate financial records. If found guilty, directors can be required to personally repay money to the company for distribution to creditors. They may also face disqualification from acting as directors for up to 15 years. Misfeasance claims are a serious risk in liquidation and highlight why directors must act responsibly and seek professional advice when financial distress arises. Keeping detailed records, treating creditors fairly, and avoiding preferential payments are key steps to avoid accusations of misfeasance.