Anonymous, Essex

If your business is in financial distress or it looks like you won’t be able to meet your financial obligations, there may be certain things that you need to do to meet legal requirements and repay your commercial debts to the best of your ability.

Failing to do this can be described by three terms:

• Misfeasance
• Malfeasance
• Nonfeasance

These represent three types of wrongdoing that result from failing to act or act appropriately.

In the context of insolvency, committing any of these types of wrongdoing can result in further action being taken, so it’s important to understand how to avoid wrongdoing in the course of insolvency proceedings.

Misfeasance

Misfeasance means that you failed to carry out a duty correctly without the intent to cause harm.

Applied to corporate insolvency, the term typically refers to actions by company directors or officers that are lawful in nature but carried out in a manner that is negligent or breaches their fiduciary duties.

This can include making decisions that harm the company’s creditors, such as selling assets at undervalue, in order to raise capital quickly.

This is clearly not in the creditors’ best interest, but it was not done maliciously – in fact, it was done with the intent of repaying a portion of the company’s debts quickly.

Malfeasance

Malfeasance is deliberately failing to carry out a duty properly or doing something in direct contradiction with a duty with the intent to cause harm.

Within the framework of corporate insolvency, this term covers actions taken by company directors or officers that are illegal or fraudulent.

Examples include misappropriating company funds, falsifying company accounts, or engaging in fraudulent trading practices.

Malfeasance is often considered to be a more severe offence than misfeasance, as it involves deliberate wrongdoing.

Nonfeasance

Nonfeasance denotes a failure to act at all when there was a duty to do so.

In relation to corporate insolvency, nonfeasance might involve directors failing to keep adequate financial records, not filing required documents with the Government, or failing to act when the company is insolvent to mitigate losses to creditors.

What happens next?

When a business becomes insolvent, acts of financial wrongdoing can significantly affect the outcome for creditors, shareholders, and other stakeholders.

Directors and officers may face personal liability for debts or damages arising from these actions, especially if their conduct contributed to the company’s insolvency or exacerbated the financial situation.

Misfeasance, malfeasance, and nonfeasance can all trigger legal actions against the directors, leading to fines, disqualification from holding directorships and in severe cases, imprisonment.

The law imposes strict duties on directors and officers to act in the best interests of the company and its creditors, particularly when there is a potential for the business to become insolvent and default on debt payments.

It is essential for directors and officers to understand their duties and the distinction between these forms of misconduct.

Acting responsibly and in line with your legal obligations is a must to minimise the damage to you and your business caused by insolvency.

Our team of experts can advise on navigating corporate insolvency – contact us today.

Whether your business employs only a handful of employees or thousands, employment contracts are a legal obligation all employers must comply with.

Having these contracts in place allows you and your staff to know exactly where you stand in terms of obligations and rights, whilst also providing legal protection should issues arise down the line.

Lisa Judd, our Head of Employment & HR Advisory, goes into the importance of secure contracts for SMEs and what should be included.

When should contracts be introduced?

Contracts should be provided from the first day of employment.

Legally, you do not have to provide a written contract but instead a statement of main terms. However, if you do not provide a written contract, that does not mean that there is no contract in place. Taking on an employee automatically generates a verbal contract, based on any discussions and what happens in practice, which can lead to dispute. It is for this reason that it is recommended for both employers and employees to have a written contract in place.

A well drafted employment contract also increases the options available to an employer when dealing with common workplace issues e.g. giving the employer the ability to make deductions from wages that otherwise they could not make, for any sums due to the employer.

What to include

Employment contracts are made up of both express terms (those stated in any written contract and implied terms (implied by fact, law, custom and practice).

Express terms should include:

• The names of the employer and employee
• The date the employment commenced
• Terms setting out remuneration and contractual benefits.
• Working hours
• Job title and duties
• Any probationary period
• Place of work
• Notice terms
• Holiday entitlement and pay
• Terms relating to any requirement to work outside the UK
• Whether any collectively agreed terms apply

Care should be taken to identify whether any benefits offered e.g. sick pay or bonus/commission are contractual or discretionary.

In addition, employers may wish to include some form of post-termination restrictions in order to protect their confidential information. These will not be appropriate for all employees but may be very important for certain types of client-facing employees.

Implied terms include:

• Duties on employers to provide work and pay
• Duties on employees to be ready willing and available to do it and to obey reasonable instructions and to exercise reasonable care and skill
• A duty of mutual trust and confidence between employer and employee
• A duty of fidelity
• A duty on employers to take reasonable care of the health and safety of their employees (including both physical and mental health)
• A right to reasonable notice

It is best to include all of the terms in writing when drafting a contract. This ensures that there are no misunderstandings with what is expected of both employees and employers. In addition, employers may wish to include some form of post-termination restrictions in order to protect their confidential information. These will not be appropriate for all employees but may be very important for certain types of client facing employees.

Different types of contracts

Typically, employers might want to have Directors Service Agreements, a contract for more senior employees and one for more junior employees.

They may also need contracts for staff who are full time or part time, who only work part of the year, or who have irregular or no guaranteed hours.

Sometimes it is sensible for employment contracts to be in the form of a deed rather than a simple contract, for example when new terms like longer notice or restrictive covenants are introduced without some additional consideration (e.g. without their being accompanied by a pay rise, bonus or promotion).

Updating contracts

It is important to keep contracts up to date to reflect any changes e.g. in employment laws  or arising from any change in the role or seniority of the employee.

Currently it is sensible for employers to be checking whether the way they calculate holiday pay is fully compliant with recent statutory changes, especially for employees who work overtime so regularly that it might be considered part of their normal remuneration.

Simple contractual changes purely benefiting the employee, like updating remuneration provisions e.g. for the recently announced increase to the National Minimum Wage (effective April 2024) can be done by way of a simple letter confirming the rise.

For more extensive changes, especially those more for the employer’s benefit or not having immediate binding effect (like changes to notice or port termination restrictions) it is sensible to take implementation advice.

This will usually be to consult and to endeavour to get the employee to sign to confirm not just their receipt of new terms, but their acceptance of them, but there are other options available where agreement cannot be reached.

If you need help with employment contracts, get in touch with one of our experts today.