The UK Supreme Court's decision in Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd [2025] UKSC 18 has confirmed that liability for fraudulent trading under section 213 Insolvency Act 1986 does not require a defendant to have participated in the management or control of the business that was engaged in fraudulent trading – it extends to the involvement of third parties, and any knowing involvement will suffice.
The judgment also considers an intriguing question about section 32 Limitation Act 1980, which in fraud claims postpones the beginning of the six-year limitation period until such time as the fraud could, with reasonable diligence, have been discovered. How is this section applied where the claimant is a company that had been dissolved six years ago, but is deemed to have existed at the relevant time under section 1032 Companies Act 2006?
Background
Bilta, Weston, Nathanael, Vehement, and Inline were vehicles in a missing trader intra-community fraud (MTIC fraud) during the summer of 2009. This involved spot trading in carbon credits under the EU Emissions Trading Scheme, also known as EU Allowances (EUAs).
The fraud exploited the VAT-free status of imports from one EU country to another, adding VAT to the sale price when the imported goods were sold within the importing EU country. The fraudulent scheme involved traders accumulating large VAT liabilities, failing to account for the VAT due, and instead paying their VAT receipts to third parties before going into insolvent liquidation.
The companies involved in the fraud are all now in liquidation. They owe enormous VAT liabilities to HMRC, the principal creditors in their insolvencies.
On 8 November 2017, the five companies and their respective liquidators issued a claim form against Tradition Financial Services (Tradition), which was a company alleged to have brokered or facilitated some of the fraudulent trades. The claimants alleged that Tradition had dishonestly assisted the directors of the claimant companies in their breaches of fiduciary duty, and that Tradition was liable for knowingly participating in fraudulent trading under section 213 Insolvency Act 1986.
The claimants and Tradition reached a partial settlement agreement which left two issues remaining for the judge to decide on. Those issues were: (i) whether Tradition was within the scope of section 213 Insolvency Act 1986 and (ii) whether the claims in dishonest assistance are statute-barred. Those questions were ultimately referred to the Supreme Court, to be decided based on a set of assumed facts.
What did the Supreme Court decide on the first question?
Section 213 Insolvency Act 1986 (Fraudulent Trading) provides that if, in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the Court may declare that "any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the Company's assets as the Court thinks proper."
Tradition argued that the phrase "any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned" is restricted to persons exercising management or control over the company.
However, the Court concluded that there was nothing in the language to restrict the scope of the provision to the directors or other "insiders" involved in the management of the company, meaning section 213(2) Insolvency Act 1986 is broad enough to include third parties who dealt with the company if they were knowingly parties to the fraudulent business being carried on by the company. The extent to which the third party must be involved in the carrying on of the fraudulent business is then a question of fact and degree.
This literal interpretation was also supported by the statutory context: where Parliament intended to limit the scope of certain provisions of Insolvency Act 1986 to directors or other company insiders, it did so expressly: e.g. section 212 (summary remedy against delinquent directors, liquidators, etc.), section 214 (wrongful trading), section 216 (restriction on re-use of company names) and section 217 (personal liability for debts, following contravention of s. 216). The Court also thought there was nothing in the legislative history which militated against their natural meaning: "a man who warms himself with the fire of fraud cannot complain if he is singed".
What did the Supreme Court decide on the second question?
The claimant companies had alleged that Tradition was also liable in dishonest assistance, but these claims were found to be out of time, having been brought in November 2017, more than six years after the acts of dishonest assistance by Tradition had occurred (between May and July 2009). Nathanael and Inline were granted permission to appeal this finding on limitation and sought to rely on section 32 Limitation Act 1980.
Section 32 Limitation Act 1980 postpones the start of the limitation period for fraud claims until such time as the claimant has discovered the fraud or could with reasonable diligence have discovered it. The burden of proof is on the claimant to show that they have the benefit of this provision. The Supreme Court noted that it is therefore useful to formulate the test as being that the claimant must show it could not with reasonable diligence have discovered the fraud.
Section 32 Limitation Act 1980 would only assist the claimant companies if they could show that they could not with reasonable diligence have discovered the fraud before 8 November 2011, the date six years before they issued their claim form. However, on that date, neither Nathanael nor Inline in fact existed.
Nathanael and Inline had been struck off the register of companies and dissolved, but subsequently restored to the register and then subjected to winding up orders and the appointment of liquidators in 2013 and 2015 respectively. Because of this strike off and restoration, section 1032 Companies Act 2006 applied. The effect of section 1032 is that a company which is restored to the register is deemed to have continued in existence as if it had not been dissolved or struck off the register. This meant that although in fact the companies were not in existence when limitation expired, the law deems that they did exist at that time.
Nathanael and Inline argued that they could not have discovered the MTIC fraud any earlier than they did because they did not have officers capable of discovering the fraud orchestrated by their directors (their knowledge of the fraud not being attributable to the companies) until the liquidators were appointed. The two companies submitted that section 1032 Companies Act 2006 should be read so as to deem that they had only a 'bare' existence during the period of dissolution, with no officers in post who could have exercised reasonable endeavours to discover the fraud.
The Supreme Court dismissed the appeal, finding that there was nothing in the deeming provision of section 1032 Companies Act 2006 to support the claimants' interpretation.
The Supreme Court applied the principles relating to statutory deeming provisions, in particular that:
- the extent of what is to be deemed is a matter of construction of the statutory provision in question;
- a deeming provision should not be applied so as to produce unjust, absurd or anomalous results unless clear language requires this; but
- the Court should not shrink from applying the fiction created by the deeming provision to the consequences which would inevitably flow from that fiction being real.
The only thing that section 1032 Companies Act 2006 deems to be true about a dissolved company is that it continued to exist during the period in which it was dissolved. The statute does not provide anything about deeming whether the company had directors, and if so how competent those directors were.
The question whether the company is to be assumed to have had officers, and therefore whether such officers could with reasonable diligence have discovered the fraud, is therefore to be answered as a question of counterfactual, not historical, fact on the balance of probabilities by reference to the evidence. Nathanael and Inline had not adduced evidence on the point, and therefore were unable to discharge the burden of proof on them to show they could not have discovered the fraud sooner.
The Supreme Court additionally suggested that it could not be right that every dissolved and subsequently restored company be deemed to have had no officers, because that would allow them to avail themselves of section 32 Limitation Act 1980 in all circumstances. They would always and inevitably succeed in showing they could not with reasonable diligence have discovered frauds against them, because they could always show that they had no officers. This would run contrary to the intended purpose of section 32 Limitation Act 1980.
Comment
The Supreme Court's confirmation that section 213 Insolvency Act 1986 does not contain anything restricting its application to those involved in directing or managing company business reflects the orthodox understanding of this provision.
Insolvency practitioners and creditors will welcome the statement from the highest authority that section 213 can be used to recover sums from any party, including a third party, that actively assisted in fraudulent trading.
The decision that a broad reading of section 213 is correct dovetails with other recent decisions demonstrating the English courts' willingness to interpret and apply the Insolvency Act 1986 in a creditor-friendly fashion. Earlier this year, the Supreme Court determined that section 423, which addresses transactions defrauding creditors, could be used where a debtor procures the transfer of an asset they do not own – this was another decision confirming that insolvency legislation should be construed broadly in order to afford maximum protection to creditors. Further, the significant liabilities imposed on the former directors of BHS for wrongful trading under section 214 Insolvency Act 1986 demonstrated the robust approach of the English courts to clawing back funds from those responsible for avoidable losses on insolvency.
The examination in this case of the interaction between section 32 Limitation Act 1980 and section 1032 Companies Act 2006 is novel and leaves open an interesting question of evidence. The Supreme Court's conclusion that section 1032 Companies Act 2006 says nothing about what officers a restored company is deemed to have had seems inevitable, and thus it must be right that the burden remains on a restored claimant company to show it could not without reasonable diligence have discovered a fraud. However, it remains to be seen what evidence would suffice or could be adduced about this. The claimants in this case had not addressed the point, and such a counterfactual appears, on its face, likely to be particularly difficult to establish conclusively.
This article was prepared with assistance from Sarah Gashi, Training Scholar.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
