A Guide to Misfeasance Claims

Misfeasance is the misapplication of money or company property. As far as directors of a company are concerned, misfeasance is considered a breach of fiduciary duty. For directors facing a misfeasance claim, there are certain steps that must be taken.

Step 1: Respond to the claim letter without delay

When you receive a letter of claim, be sure to deal with it straight away. The liquidator will expect a response within a particular time period. If you fail to respond within this time then you could face court proceedings, the costs of which could be very damaging. You should however not respond on a whim and without taking legal advice, because doing so could scupper your chances of minimising the impact of any claim.

Step 2: Take Professional Advice

Misfeasance claims can be for considerable sums of money which could be seriously damaging for a business. It is therefore essential to seek specialist legal advice as early on as possible. You should never respond to a claim before you take such advice. This is your opportunity to clearly present the facts of the situation. With a well-structured response, you will stand a much better chance of avoiding the claim altogether, or at very least, mitigating the consequences.

Step 3: Arrange to Meet the Liquidator

If you can sit across the desk from the liquidator and discuss your circumstances and put across a good case (as assisted by your solicitor) then your chances of a more advantageous outcome will be boosted.

Step 4: Decide What You Want to Achieve

It may be that you are intent on completely denying the claim and you wish to have it set aside. Then again, you may be satisfied to settle the claim in part, with the goal of minimising the amount being claimed.

Some directors are happy to accept the claim in full and settle with as little hassle and time spent as possible. If you are in agreement with most of the claim being made, or you just want everything to be settled quickly, you may be best advised to settle early. Sometimes the liquidator will accept a payment plan for settlement over a period of time.

If you wish to completely defend the claim, you will need to be realistic. It is going to take time and money to reach a settlement. Some claims can take up to two years to reach even a final hearing, with costs spiralling as more time passes.

Next Steps

Whatever you decide to do, be sure to take professional advice. You’ll need an accountant and a lawyer who specialises in misfeasance claims. Be sure to choose one with particular skills in negotiation and strategy planning. Why not ask your local bookkeepers if they can recommend anyone?

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