Bilta (UK) Ltd v Tradition Financial Services Ltd [2025] UKSC 18 (07 May 2025)

Liquidators of Bilta, a company used for VAT fraud by its directors, sued those directors. The directors argued their fraud should be attributed to the company, barring the claim. The court held that fraud cannot be attributed to a company when the claim is against the wrongdoing directors themselves.

Facts

Bilta (UK) Ltd was a company used by its sole director, Mr Nazir, and other individuals and companies to carry out a carousel fraud scheme involving the trade of European Emissions Trading Scheme Allowances (carbon credits). The scheme was designed to defraud HM Revenue and Customs (HMRC) by generating a substantial VAT liability for Bilta, which was never intended to be paid. Bilta was compulsorily wound up, and its liquidators brought claims against the former director, Mr Nazir, and the other company allegedly involved in the conspiracy, Jetivia SA, and its chief executive. The claim was for damages for fraudulent trading and conspiracy to injure the company.

Issues

The central legal issue before the Supreme Court was whether the fraudulent state of mind of the director, Mr Nazir, could be attributed to the company, Bilta. If the fraud was attributed to Bilta, the respondents (the director and the other conspirators) argued that Bilta’s claim would be defeated by the defence of illegality, or ex turpi causa non oritur actio (an action cannot be founded on a dishonourable cause), as the company itself would be relying on its own illegal acts. A secondary issue concerned whether section 213 of the Insolvency Act 1986, which deals with fraudulent trading, had extraterritorial effect.

Judgment

The Supreme Court unanimously dismissed the appeal, finding in favour of the liquidators. The Court held that the defence of ex turpi causa could not succeed because the fraudulent conduct of its director could not be attributed to the company in the context of a claim against that same director for breach of his duties and for defrauding the company.

Reasoning of the Court

The Court reasoned that the principle of corporate attribution, which treats the acts and state of mind of a company’s directing mind and will as those of the company itself, does not apply in all circumstances. Its application depends on the context and the purpose of the legal rule in question. In a claim brought by a company (via its liquidator) against its own directors for causing it loss through fraud, the law does not attribute the directors’ fraud to the company to defeat the claim. To do so would undermine the very duties the directors owe to the company and would prevent the company from seeking redress for the harm it has suffered.

Lord Neuberger stated:

Where a company has been the victim of wrongdoing by its directors, or of which its directors had notice, then the wrongdoing, or knowledge, of the directors cannot be attributed to the company as a defence to a claim brought against the directors by the company’s liquidator, in the name of the company and/or on behalf of its creditors.

The Court distinguished this situation from a claim brought by the company against an innocent third party, where attribution might be appropriate. On the secondary issue, the Court held that section 213 of the Insolvency Act 1986 does have extraterritorial effect, allowing claims to be brought against persons based outside the jurisdiction.

Implications

The judgment in Bilta is a landmark decision in company and insolvency law. It clarifies and places a crucial limitation on the doctrine of corporate attribution, particularly in cases of director fraud. The decision significantly strengthens the ability of liquidators to recover assets for the benefit of creditors by preventing wrongdoing directors from using the company’s involvement in the illegality as a shield against liability. This ensures that the interests of the true victims of the fraud, the company’s creditors, are protected.

Verdict: The appeal is unanimously dismissed.

Source: Bilta (UK) Ltd & Ors v Tradition Financial Services Ltd [2025] UKSC 18 (07 May 2025)