NDP Assisted a Director to Defeat a Liquidator’s Misfeasance Claims Against Him – A Case Study. 

This case study looks at how Neil Davies and Partners (NDP) successfully acted for and assisted a director to defeat a misfeasance claim of £200,000 that had been brought against him by a liquidator.

Details of the Misfeasance Claim

The director’s company had been wound-up by a court order. The subsequently appointed liquidator issued proceedings against the director of the company pursuant to sections 127, 238, 239 and 212 of the Insolvency Act 1986, seeking to recover from him personally the very large sum of c.£200,000 plus interest and legal costs.

The liquidator alleged that the director caused or allowed payments and transfers of the company’s property to be made to him (and companies connected to him) after the Winding-Up Petition had been presented, and at a time when the company was insolvent. The liquidator’s case was that these payments and transfers totalling £198,616.01 were void and the director’s actions amounted to misfeasance.

The Liquidator alleged that the payments were neither bona fide in the interests of the company nor for the benefit of the company and that the director had breached his fiduciary statutory duties to the company.

The relief sought by the liquidator was a declaration that the payments were void and sought an order that the director repay the sums to the company together with interest plus the Liquidator’s very substantial legal costs.

The Director Believed He Was Authorised to Receive These Payments

The director believed that because he was the holder of a debenture, he was entitled to authorise or otherwise receive those payments on the basis that the debenture was exercisable over all of the company’s assets and property.

The debenture crystallised (transforming from a floating to a fixed charge) upon the director issuing a demand for the repayment of loans he had made to the company and absent the company being able to repay those loans.

The director contacted NDP for an initial consultation with a view to defending this misfeasance claim. On our analysis of these particular facts, we believed that the director was perfectly entitled to rely on the debenture and thus entitled to receive the payments and transfers.

On our advice, the director also sought to rely on section 1157 Companies Act 2006, which confers a power on the Court to relieve a director of the alleged breach of fiduciary duties if there are explanations for the conduct complained on, and where the director has acted in good faith despite there being, at first appearance, a breach of fiduciary duty.

Curiously, the conduct of the director, (including the payments made and received by him), had previously been thoroughly investigated by the Secretary of State for Business, Innovation and Skills who decided that no disqualification proceedings ought to be bought against the director, a decision based on the very same facts.

The Liquidator Chose to Proceed With the Misfeasance Claim

Nevertheless, the liquidator chose to press ahead with the recovery action despite NDP demonstrating the flaws and weakness in his case to his solicitor at great length, both in correspondence and during an unsuccessful Mediation.

On the advice of NDP and specialist chancery counsel, the director went on the attack and issued a cross-application against the liquidator.  The director alleged as against the liquidator that the proceedings issued by the liquidator were seriously flawed and lacked any prospect of succeeding, that the liquidator failed to act with due care and diligence and thus breached his fiduciary duties in his fruitless pursuit of generating fees for himself.

Indeed, NDP argued that even if the liquidator recovered the full sums claimed from the Director, there would be little return to the two secured creditors, of which the director was one. Further, any recovery would go in part to the director as a secured creditor. Thus not only was the claim meritless but also circuitous.

The Liquidator Decided to Abandon the Misfeasance Claim

After a great deal of negotiating, and on the eve of the Trial, NDP were able to persuade the liquidator to abandon his claim, without the director having to pay a single penny to the liquidator.

Contact us if you are Facing a Misfeasance Claim

NDP’s solicitors are highly experienced in Misfeasance Claims’ cases, with experience of acting for and against Liquidators. We believe gives us an important competitive edge, because we know what the opponent wants and how to achieve the best possible outcome for our clients, as this case study demonstrates.

If you are facing a misfeasance claim please contact us or call us on 0121 200 7040 immediately for an initial free discussion of your case. The sooner you contact us, the more we can do to help.