Key takeaways for insolvency practitioners from Bilta v TFS:
- Third-party liability in fraudulent trading: The scope of section 213 Insolvency Act 1986 is broad, and can give rise to liability for third parties.
- Proving fraud discovery delays: Insolvency practitioners must be prepared to demonstrate, with evidence, that fraud could not have been discovered within the usual limitation period to benefit from an extension under section 32 of the Limitation Act 1980.
- Restored companies and diligence: Section 1032 of the Companies Act 2006 treats restored companies as continuously existing, meaning they are expected to act with reasonable diligence in identifying fraudulent activities, even during periods of dissolution.
- Risk of time-barred claims: Claims for dishonest assistance can fail if practitioners do not present robust evidence that the fraud was undiscoverable within the limitation period.
The recent Supreme Court decision in Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd [2025] UKSC 18 marks a significant moment in the interpretation of fraudulent trading under section 213 of the Insolvency Act 1986. The judgment expands the scope of section 213, affirming that liability for fraudulent trading is not confined to those in managerial roles within the insolvent company. Instead, it can extend to any party knowingly participating in the company's fraudulent business.
Furthermore, the case highlights the complexities of limitation periods in corporate fraud. In particular, it clarifies that where a company has been dissolved for a period of time before being restored, limitation periods driven by the knowledge of the company are not necessarily stopped for the period of dissolution.
Background
This case arose from the insolvency of companies which are alleged to have been committing missing trader intra-community ("MTIC") fraud. MTIC fraud was a type of VAT fraud which involved companies importing VAT-free goods from one EU country into another, selling them domestically with VAT charged, and then entering insolvency with substantial unpaid VAT liabilities to HMRC. Bilta (UK) Ltd and its related entities (collectively, the Bilta Companies) were accused of having participated in such fraudulent schemes, culminating in their liquidation.
Tradition Financial Services Ltd (TFS) is a broker which facilitated the transactions central to the MTIC fraud. The Bilta Companies, along with their joint liquidators, pursued claims against TFS on two fronts:
- that TFS dishonestly assisted the Bilta Companies' directors in breaching their fiduciary duties to the Bilta Companies (the Dishonest Assistance Claims); and
- that TFS is liable for the Bilta Companies' fraudulent trading (alongside the Bilta Companies' directors) under section 213 of the Insolvency Act 1986 (the Fraudulent Trading Claims).
TFS resisted both claims. In particular, it argued that the Dishonest Assistance Claims were time barred, and that TFS could not be liable for the Fraudulent Trading Claims because they were not directly involved in the management of the Bilta Companies.
The issues
By the time these challenges reached the Supreme Court there were two outstanding questions:
- can liability for fraudulent trading under section 213 extend to third-parties who knowingly participate in the fraudulent activities of a company, or is it confined to individuals directly involved in the management or control of the fraudulent company?
- what was the effect of the period in which the Bilta Companies were dissolved on the limitation periods for the Dishonest Assistance Claims?
Who does section 213 Insolvency Act 1986 extend to?
Section 213 of the Insolvency Act 1986 targets fraudulent trading by holding individuals accountable for knowingly participating in business activities carried out "with the intent to defraud creditors" or for other "fraudulent purposes".
During a company's winding-up process, the court may, on the liquidator's application, require such individuals to contribute to the company's assets to the extent deemed appropriate by the court. This provision is designed to deter fraudulent conduct and ensure accountability, extending liability to those complicit in the misuse of corporate structures for unlawful gains.
The question before the Supreme Court was whether the words "persons who were knowingly parties to the carrying on the of the business" for these fraudulent purposes encompasses any party that can be said to have knowingly been involved in this behaviour. TFS argued that its application should be restricted to those "involved in the management or control of the fraudulent business". In other words, the directors and other senior officers of the company itself.
What was the position on Limitation?
The claimants argued that their claims were subject to the limitation period provided for under section 32(1)(b) of the Limitation Act 1980. This provision sets out that where a claim is based upon the defendant's fraud, and the facts on which that claim is founded were deliberately concealed from the claimant, the limitation period will not begin to run until the point at which the claimant "has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it."
The defendants accepted that this provision applied, but argued that TFS knew or could have discovered the fraud with reasonable diligence more than six years before the claims were brought. In doing so, they alleged that the fact that some of the Bilta Companies were dissolved during this period was irrelevant for the purposes of determining when they could have discovered the fraud.
What did the Supreme Court find?
On the scope of section 213:
Unanimously rejecting TFS' argument, the court gave the words of the statute their natural meaning: "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. The question is simply whether they were knowing parties to the fraudulent business activities in which the company was engaged. The court also noted the purpose of the provision, which was to deter dishonest participation in fraudulent business activity generally, not just by insiders.
Limitation period for dishonest assistance claims:
The court held that the effect of section 1032 of the Companies Act 2006 is that where a company is restored to the register after having been dissolved, the court must treat it as if it was never dissolved. The question for the purposes of limitation under section 32 of the Limitation Act 1980 therefore becomes whether the company should be assumed to have had directors in place who could have discovered the fraud during this period.
The court stated that the burden of proof lies with the claimant to demonstrate that the fraud could not have been discovered with reasonable diligence. The Court emphasised that the standard required is one of "reasonable" diligence, which involves an objective test considering what a hypothetical reasonable person in the claimant's position would have done to uncover the fraud. The Court held that the question of whether the company should be treated as if it would have had directors in place during the period in which it was dissolved if it had in fact not been dissolved was part of this consideration, and the claimants in this case had failed to show that this would not have been the case.
As a result, the court concluded that the Bilta Companies had failed to present sufficient evidence demonstrating that the fraud could not have been identified through reasonable diligence more than six years before the claim was issued, and the Court concluded that the dishonest assistance claims were time-barred.