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

Companies involved in MTIC VAT fraud brought claims against Tradition, a broker, under section 213 of the Insolvency Act 1986 for fraudulent trading and dishonest assistance. The Supreme Court held that section 213 extends beyond company insiders to third parties who knowingly participate in fraudulent business activities, and addressed limitation issues for dissolved companies.

Facts

Five companies (Bilta, Weston, Nathanael, Vehement and Inline) were vehicles in a missing trader intra-community (MTIC) VAT fraud involving spot trading in carbon credits (EU Allowances) in 2009. The fraud exploited VAT rules whereby companies accumulated VAT liabilities which were never paid to HMRC before the companies entered insolvent liquidation. Tradition Financial Services Ltd acted as a broker, introducing parties and facilitating transactions, allegedly knowing the trading was linked to VAT fraud.

The liquidators brought claims under section 213 of the Insolvency Act 1986 (fraudulent trading) and the companies brought claims in dishonest assistance against Tradition. The parties reached a partial settlement, leaving two issues for determination on assumed facts: whether Tradition fell within section 213, and whether certain claims were statute-barred.

Issues

Issue 1: Scope of Section 213

Whether section 213(2) of the Insolvency Act 1986 applies only to persons exercising management or control of the company’s business (the ‘narrow interpretation’), or extends to third parties who knowingly assisted in the fraudulent carrying on of the company’s business.

Issue 2: Limitation

Whether the dishonest assistance claims by Nathanael and Inline (both previously dissolved and restored to the register) were statute-barred, and how section 32 of the Limitation Act 1980 operates during a company’s dissolution period.

Judgment

Section 213 Interpretation

The Supreme Court unanimously rejected the narrow interpretation. The natural meaning of section 213(2) – ‘any persons who were knowingly parties to the carrying on of the business’ for fraudulent purposes – is wide enough to cover not only company insiders but also persons dealing with the company if they knowingly participated in the fraudulent business activities.

The Court noted the contrast between section 213 and surrounding provisions (sections 212, 214, 216) which use narrower language specifically targeting company insiders such as directors and shadow directors. The legislative history, including the Cohen Report’s recommendation to extend liability to ‘other persons who were knowingly parties to the frauds’, supported this broader interpretation.

The Court endorsed the approach of Neuberger J in In re BCCI [2002] BCC 407, agreeing that the provision extends beyond those who perform managerial or controlling roles. The presumption against doubtful penalisation did not assist Tradition because criminal liability requires dishonest knowledge, and outsiders can already face criminal liability as accessories to fraud.

Limitation

The Court held that section 1032(1) of the Companies Act 2006 (which deems a restored company to have continued in existence) does not require the court to deem that the company had no officers during the dissolution period. The deeming provision only establishes that the company continued to exist; whether it had competent officers capable of discovering fraud is a separate factual question to be determined on evidence.

Since Nathanael and Inline adduced no evidence to prove they could not with reasonable diligence have discovered the fraud during the counterfactual period of deemed existence, they failed to discharge the burden required under section 32 of the Limitation Act 1980.

Implications

This decision significantly clarifies the scope of section 213, confirming that third parties who knowingly participate in a company’s fraudulent business activities can be held liable to contribute to the company’s assets, even without any management or control role. This has important implications for counterparties, brokers and professional advisers who deal with companies engaged in fraud.

The judgment also provides guidance on the interaction between statutory deeming provisions for restored companies and limitation defences, establishing that companies cannot rely on their former non-existence to escape limitation consequences without positive evidence of what would have occurred had they not been dissolved.

Verdict: Tradition’s appeal on the scope of section 213 was dismissed; the section applies to third parties who knowingly participate in fraudulent trading. The appeals by Nathanael and Inline on limitation were also dismissed; they failed to discharge the burden of proving they could not with reasonable diligence have discovered the fraud.

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