We are pleased to let you know that Natalie Kearney will be returning to practice from 23 June, following a period of maternity leave after the birth of her daughter, Olivia. She will initially be focusing on paperwork and advisory instructions, with court work being phased back in over the summer months. In the meantime, we are delighted to share the following article, prepared by Natalie as part of her return.
The Supreme Court’s judgment in Bilta (UK) Ltd (in liquidation) v Tradition Financial Services Ltd is important for insolvency practitioners, lawyers, and those involved in fraud litigation. It clarifies the extent to which third parties can be held liable for fraudulent trading under section 213 of the Insolvency Act 1986. Specifically, it has confirmed that:
- a defendant does not need to have participated in the management or control of the fraudulently trading company to attract liability; and
- any knowing involvement of anyone who dishonestly assists or contributes to the carrying on by the company of any business intended to defraud creditors will be sufficient.
Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd [2025] UKSC 18
The fraudulent scheme
Bilta was amongst several companies which were vehicles in an “MTIC fraud”. The scheme involved spot trading in carbon credits under the EU Emissions Trading Scheme. The five companies entered into liquidation owing significant VAT liabilities to HMRC.
Legal issues
The liquidators of the companies, together with the companies, brought claims under section 213 against Tradition Financial Services Ltd [‘Tradition’]. Section 213 imposes liability on “any persons who were knowingly parties to the carrying on of the business” with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose. The claimants also alleged Tradition had dishonestly assisted the directors of the companies in their breaches of fiduciary duties in relation to acts between May and July 2009.
A partial settlement was reached, leaving two legal issues to be determined:
- whether Tradition was within the scope of section 213; and
- whether the claims in dishonest assistance were statute-barred.
In relation to section 213, Tradition submitted that the phrase “any persons who were knowingly parties to the carrying on of the business” was restricted to persons exercising management or control over the company in question.
Supreme Court Judgment
Section 213
The Court concluded that the language of section 213 was not ambiguous and there was nothing therein to restrict its scope to directors or others involved in the management or control of the company. The wording is broad enough to include third parties if they were knowingly parties to the fraudulent business being carried on. It considered that where Parliament intended to limit the scope of provisions of the Insolvency Act 1986 to directors or other officers, it did so expressly, as is contained in sections 212 (which refers to a person who “is or has been concerned, or has taken part, in the promotion, formation or management of the company”) or 214 (which refers to “a person who is or has been a director of the company”).
The Supreme Court endorsed, at [36], a helpful example given in the Court of Appeal ([2023] EWCA Civ 112) by Lewison LJ at paragraph 93:
“Suppose that a manufacturer regularly supplies counterfeit designer clothes to a retailing company, knowing that the retailer will pass them off as genuine. It is, in my judgment, no misuse of language to describe the manufacturer as ‘party to the carrying on’ of a fraudulent business, even though he exercises no managerial or controlling role within the retailing company; and the manufacturer may have other business activities that are not fraudulent. The manufacturer knows about the retailer’s fraudulent business and is actively participating in it in the sense of furthering and facilitating it.”
Limitation
As to the question of whether the dishonest assistance claims were statute-barred; the acts complained of took place between May and July 2009 and the claim was issued in November 2017. The claimants sought to rely on section 32 of the Limitation Act 1980, postponing the start of the limitation period until such time as the claimants had discovered the fraud, or could with reasonable diligence have discovered it.
The Supreme Court confirmed that the latter is perhaps best framed as the claimant being required to show it could not with reasonable diligence have discovered the fraud.
As such, the key date was 8 November 2011; however, the relevant parties (Nathanael Eurl Ltd (in liquidation) and Inline Trading ltd (in liquidation)) did not exist at that date, as they had been struck off the register of companies and dissolved. They had subsequently been restored and then wound up and thus section 1032 of the Companies Act 2006 applied. Accordingly, the companies were deemed to have continued in existence and although they did not, in fact, exist when limitation expired on 8 November 2011, the law deemed they did exist at that time.
The claimants submitted:
- they could not have discovered the fraud any earlier than they did because they did not have officers capable of discovering the fraud until liquidators were appointed; and
- section 1032 should be read so as to deem the companies only had a ‘bare’ existence during the period of dissolution, with no officers in post who could have discovered the fraud.
The Supreme Court dismissed the appeal finding nothing in section 1032 to support the claimants’ interpretation. The question as to whether a company is assumed to have had officers, and therefore whether such officers could with reasonable diligence have discovered the fraud, is a question of fact based on the balance of probabilities with reference to the available evidence. Neither of the claimant companies had adduced evidence on the point and therefore, given the burden was theirs, they had failed to discharge the burden of proof and the claims were statute-barred.
Implications for practice
Whilst the decision in relation to section 213 is perhaps unsurprising, it is a welcome confirmation of the position when pursuing third parties that actively assisted in fraudulent trading. It will be wise for parties involved in transactions with companies at risk of insolvency to be advised of the potential liability for fraudulent trading.
The interpretation of section 213 is in line with the creditor-friendly interpretation of section 423 in the decision in El-Husseiny v Invest Bank PSC [2025] UKSC 4 earlier this year, which confirmed that section 423 can be used where a debtor procures the transfer of assets they do not personally own.
The decision in relation to section 32, and its interplay with section 1032, is particularly interesting in that it raises the question as to what evidence could be adduced to show that a company that was dissolved and subsequently restored could not with reasonable diligence have discovered a fraud. At first blush it seems likely to be a difficult evidential hurdle for a claimant and certainly something to keep an eye on for future developments.
Anyone interested in hearing more about the implications of this case, or the section 423 developments, is welcome to attend the St Philips Chambers Insolvency Conference on 18 June 2025. Register here >>>
Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the law for educational and/or informational purposes. It is not intended to be a substitute for specific legal advice and should not be relied upon for this purpose.
This article represents the opinion of the author and does not necessarily reflect the view of any other member of St Philips Chambers.
