MISFEANCE - WHAT IS IT AND WHAT DO YOU NEED TO KNOW.

Although prosecution for wrongful trading has been suspended you still need to be careful of being accused of misfeasance if your company doesn't survive and is placed into liquidation down the line.

There are hundreds of thousands of business owners struggling to keep their businesses alive right now and one of the problems that they are going to have to contend with if the company goes into liquidation are misfeasance claims down the line.

When you set up an ltd company you benefit from the protection that a lot of company gives to directors. in return for this, you have a duty of care to the company, the creditors and the public.

Misfeance simply put is when a director or ex-director misappropriates company money. Remember when you use a ltd company structure the money in the company bank in the companies and not yours.

Here is an example:

Your companies insolvent with debts of say ￡50,000 , you try and trade through, it doesn't work out and now your debts are ￡150,000, and it's impossible for the company to recover.

To add to this while you continued to try and trade through the company took on additional debts with suppliers who will never get paid.

You have also paid certain creditors back preferentially, this could be paying yourself back some money that you have lent the business ahead of other creditors such as HMRC.

This potentially could affect lots of business as there is a large number of zombie companies in the UK today being kept alive on government support with little or no chance of survival.

If there is no chance that your business is going to be able to get out of debt and trade through this then you may be better shutting the company and starting again.

The sooner that you reach out and explore the options the better.

If a business is insolvent with no prospect of recovery a line in the sand needs to be drawn to minimise the losses to the companies creditors and avoid misfeasance claims against the director down the line.

It's important to document all your decisions when the company starts to struggle financially, this will be helpful down the line should you need to defend any claims of misfeasance.

If you want some advice on misfeasance and potential consequences for a director then reach out for a confidential chat, no strings, no obligation.

Thanks

Chris