Mis-selling,
misfeasance and insolvency
Peter O'Donnell explores methods of recovery from mis-selling and misfeasance.
Misfeasance in one dictionary is defined as: ‘a transgression, especially the wrongful exercise of lawful authority.’ Synonyms: dishonesty, dishonest dealings, unscrupulousness, deceit, deception, duplicity, double-dealing, fraud, fraudulence, misconduct, lawbreaking, crime, criminality.
Of course, under the Companies Act 2006, directors can be held personally liable for losses caused to creditors where misfeasance has occurred: if the company fails, an IP can investigate the directors’ actions leading up to the time of insolvency.
Many misfeasance claims are pursued against errant directors, with significant funds returned to creditors as a result. However, there are a growing number of financial businesses failing and not all IPs will be familiar with every way that funds can be recovered.
Many misfeasance claims are pursued against errant directors, with significant funds returned to creditors as a result.
Compensation and regulation
There are businesses regulated by the Financial Conduct Authority that have failed after advising members of the public to invest in off-plan property schemes, often overseas. Many of these schemes have failed but, as the property investments were unregulated, there may be limited options for IPs wishing to investigate. However, despite the investments being unregulated, the law says that the advice itself was regulated. This means a claim for compensation for bad investment advice can be successful if brought against the independent financial advisory firm.
When claims are upheld by the Financial Ombudsman Service then the company is required under law to pay compensation to the claimant. Given the circumstances, professional indemnity insurers almost never cover negligent investment advice and that can mean the outcome for the firm is insolvency.
Until recently, individually regulated persons were not held responsible for financial mis-selling in the UK, but the regulated companies were. This allowed directors to start new financial advice firms in the knowledge that it was permissible and that no action would be taken against them personally for their previous negligence. However, if that negligence directly caused professional indemnity insurance to be withdrawn, and ultimately for the business to fail, could that be misfeasance?
Financial services regulations penalise negligent advice to invest in unregulated, high-risk schemes but where this leads directly to insolvency and creditors lose out, the IP should consider whether misfeasance can be attributed to directors of that company and therefore create a route to financial recovery.
Bringing claims for misfeasance (or anything else) will often require specialist legal advice and, potentially, funding for lawyers and disbursements or after-the-event (ATE) legal expenses insurance to protect from adverse costs risk. Annecto Legal provides access to the relevant expertise and products to be able to pursue these and other cases cost-effectively.
There are scores of funding and insurance markets active in the UK litigation field and Annecto Legal assists in navigating this fast-moving market, as well as assisting with the preparation of applications and discussing the various products and their pros and cons. Annecto’s independent view can be helpful for IPs that want to make sure they are reaching a wide market to secure the best terms.
The IP should consider whether misfeasance can be attributed to directors of that company and therefore create a route to financial recovery.
Annecto Legal assists IPs and their lawyers in identifying the right markets for their case and assists in preparing the case for underwriters to ensure quick turnaround.
Cover the costs
Whether seeking a small level of adverse costs cover to try and encourage a defendant to settle or seeking full funding and ATE for more complex cases, there is a large market for both funding and ATE in the UK. Annecto Legal assists IPs and their lawyers in identifying the right markets for their case and assists in preparing the case for underwriters to ensure quick turnaround.
If you’re interested in finding out more about financial mis-selling claims or other potential litigation assets in insolvent businesses, please do make contact: we are happy to discuss the various different funding and insurance models available to practitioners and we also offer training sessions to firms that wish to better understand the options available in the market, and to best make use of them.
