Bilta (UK) Ltd v Tradition Financial Services Ltd [2025] UKSC 18
May 8, 2025
Summary
By a Judgment given on 7 May 2025, the Supreme Court has clarified that the persons who may be held liable for fraudulent trading are not limited to those exercising management or control over the company (insiders), but instead include anyone who dishonestly assists or contributes to the carrying on by the company of any business which has been carried on with intent to defraud creditors (outsiders).
The facts
Bilta and several other companies were vehicles in a “MTIC fraud”, involving spot trading in carbon credits under the EU Emissions Trading Scheme, also known as EU Allowances (“EUAs”). The companies entered liquidation with enormous VAT liabilities owing to HMRC.
The appeal was decided on the assumed fact that the Respondent (“Tradition”) was involved in finding counterparties, and negotiating the terms on which each counterparty was prepared to buy or sell EUAs (as the case may be). It was further assumed that Tradition introduced two of the companies to an intermediary in the knowledge that the companies were unlikely to be legitimate trading concerns, did not perform any genuine “know your client” inquiries, and was aware that the nature and pattern of the EUA trading was suspicious.
The claim and decision
The liquidators argued that Tradition was liable under s. 213 of the Insolvency Act 1986 (fraudulent trading), which imposes liable 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 (emphasis added).
Tradition argued that the above phrase is restricted to persons exercising management or control over the company in question. That argument was rejected at first instance (Marcus Smith J), and by the Court of Appeal (Lewison LJ, with whom Stuart-Smith and Falk LJJ agreed).
Tradition’s appeal to the Supreme Court was dismissed. Lord Hodge and Lord Briggs (with whom Lord Hamblen, Lord Burrows and Lord Richards agreed) noted, amongst other things, that:
- The natural meaning of the statutory words – “any persons who were knowingly parties to the carrying on of the business” of the company for any fraudulent purpose – is wide enough to cover not only “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.
- There is no ambiguity in the statutory words; those words should be given their natural meaning in the absence of indications to the contrary.
- The language of s. 213(2) is strikingly different to the language used in the surrounding sections, namely s. 212 (a person who “is or has been concerned, or has taken part, in the promotion, formation or management of the company”) and s. 214 (“a person who is or has been a director of the company”).
- There is nothing in the legislative history which militates against giving the words used in s. 213 their natural meaning.
- Liability under section 213(2) depends upon dishonest participation and it exists to discourage such participation.
The Supreme Court endorsed the following helpful example given by Lewison LJ in the Court of Appeal:
“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.”
In affirming that s.213 can apply to outsiders who assist/contribute in the fraudulent trading of a company, the Supreme Court has provided welcome clarity; and the decision may see an increase in claims relying on the section.
A copy of the Supreme Court Judgment is available here: https://www.supremecourt.uk/cases/press-summary/uksc-2023-0034
