The UK Supreme Court clarifies the scope of s.213 of the Insolvency Act 1986: Bilta (UK) Ltd v Tradition Financial Services Ltd
In a landmark decision on 7 May 2025, the UK Supreme Court clarified the scope of fraudulent trading under section 213 of the Insolvency Act 1986 (“s. 213 IA 1986”) in Bilta (UK) Ltd v Tradition Financial Services Ltd [2025] UKSC 18. The judgment confirms that third parties/outsiders who participate in, facilitate or assist fraudulent transactions by a company when they know that the company’s business is being carried on for a fraudulent purpose are liable for contributions under s.213 IA 1986.
The Court also considered the application of limitation periods, where a company has been dissolved and then restored.
Nature of the Dispute
The case arose out of a missing trader intra-community fraud in the summer of 2009 involving spot trading in carbon credits under the EU Emissions Trading Scheme, also known as EU Allowances, which at the time attracted VAT. The perpetrators of the fraud would import EU Allowances without VAT and then sell with VAT within the UK. The importing company would then fail to account to HMRC for the VAT and instead pay their VAT receipts to third parties before going into insolvent liquidation.
The claimants were five companies and their liquidators, whose claims alleged that the Defendant (i) had knowingly participated in the fraudulent scheme and should therefore be required to contribute to the liquidation under s.213 IA 1986, and (ii) was liable for having dishonestly assisted the directors of fraudulent companies in breaching their duties as directors by engaging in the fraud.
The Claimants and Defendant had reached a partial settlement agreement, which left two outstanding issues for the Court to address:
Whether s.213 IA 1986 limits liability to only those persons exercising management or control over the company in question (the “insiders”).
Whether the dishonest assistance claims in relation to two of the claimant companies, which had been dissolved and later restored to the companies register, were time-barred – raising a question of how the test in section 32(1) of the Limitation Act 1980 (whether the claimant could with reasonable diligence have discovered the fraud, concealment or mistake) operates during the period of the company’s dissolution.
The Decision
In respect of the first issue, the Supreme Court held that the application of s.213 IA 1986 is not restricted in scope to the directors and other “insiders” who were directing or managing the business of the company (as argued by the Defendant). Rather, the natural meaning of the statutory words – “any persons who were knowingly parties to carrying on of the business” of the company for any fraudulent purpose – is wide enough to cover not only such “insiders” but also persons who were dealing with the company if they knowingly were parties to the fraudulent business activities in which the company was engaged.
In relation to the second issue, the Supreme Court held that the deemed existence of the companies during the period in which they were in fact in dissolution did not necessitate assuming that they lacked directors or other officers during that time (who could otherwise have uncovered the fraud). Rather, that was a question of probability to be determined on the evidence – the burden of proof was on the claimant companies, and they had failed to discharge it – as such, the claimant companies’ dishonest assistance claims remained time-barred.
Implications of the Decision
The decision of the Supreme Court clarifies an important issue for insolvency and legal practitioners on the scope of section 213(2) of the Insolvency Act 1986, and confirms to liquidators its broad application, which can be used to seek contributions from third parties that knowingly assist directors with their fraudulent business activities. The decision also provides clarity in relation to the interaction between the statutory limitation periods (for a claim) and its application in circumstances where a company has been dissolved and thereafter restored.
How Rosenblatt Can Help
Rosenblatt has a well-equipped and experienced team, which has acted on a multitude of different insolvency and fraud-related matters. Rosenblatt (Luther Kisanga (Partner) and Matthew Littlestone (Legal Director)) previously acted for Bilta (UK) Limited and its liquidators, as well as a further nine companies and their liquidators, in a high-profile dispute against Natwest Markets Plc and Mercuria Energy Europe Trading Limited, which ultimately culminated in a six-week trial and a five-day appeal (Bilta (UK) Limited (in liquidation) and Others v Natwest Markets Plc and Mercuria Energy Europe Trading Limited [2020] EWHC 546 (Ch) and NatWest Markets Plc and Mercuria Energy Europe Trading Limited v Bilta (UK) Limited (in Liquidation) and Others [2021] EWCA Civ 680).
For enquiries, please contact Luther Kisanga