From bystanders to defendants: Supreme Court confirms that fraudulent third parties are in the firing line

The Supreme Court recently considered the case of Bilta (UK) Ltd (In Liquidation) v Tradition Financial Services Ltd [2025] UKSC 18 and delved into whether the scope of s.213 of the Insolvency Act 1986 (the “IA 1986”) is limited to only those persons involved in the management or control of an insolvent company. The Supreme Court confirmed that s.213 extends to third parties and “outsiders” that are not involved in the management and control of the company, provided that they were knowingly parties involved in the fraudulent activities.

The courts went on to consider s.32 of the Limitation Act 1980 (the “LA 1980”) and the postponement of the six-year statutory limitation period in the case of fraud, concealment or mistake (and its interplay with s.1032 of the Companies Act 2006 (the “CA 2006”)), particularly looking at whether the clock should continue to run on the limitation period in the case of a company which had been dissolved and subsequently restored to the register of companies.

The facts

During the summer of 2009, Bilta (UK) Limited, Nathanael Eurl Ltd (“N Ltd”), Inline Trading Ltd (“I Ltd”), Vehement Solutions Ltd and Weston Trading UK Ltd (the “Claimants”) were involved in a VAT fraud relating to spot trading in carbon credits under the EU Emissions Trading Scheme. The Claimants owed sizeable VAT liabilities to HMRC and were subsequently put into insolvent liquidation with their liabilities outstanding, with HMRC being the principal creditor in their insolvencies.

In late 2017, the Claimants and their respective liquidators issued a claim against Tradition Financial Services Ltd (“Tradition”), the company which was alleged to have brokered the fraudulent trades for them.

The Claimants’ liquidators alleged that Tradition had participated in the fraudulent trading of the Claimants for the purposes of s.213 IA 1986 (the “Fraudulent Participation Claim”).

The Claimants further alleged that Tradition had dishonestly assisted the Claimants’ company directors in breaching their fiduciary duties to their respective companies (the “Dishonest Assistance Claim”).

In relation to the Fraudulent Participation Claim, Tradition claimed that s.213 IA 1986 was limited to only those persons exercising management or control over the relevant companies and did not apply.

Tradition argued that the Dishonest Assistance Claim was time-barred because the six-year statutory limitation period had already run from when the Claimants were dissolved.

The parties reached a partial settlement and the courts had two substantive issues left to consider:

• whether Tradition fell under the scope of 213 IA 1986 and was therefore potentially liable as an “insider”; and
• whether the Dishonest Assistance Claim was time-barred and whether or not s.32 LA 1980 applied to the facts to postpone the liability period.

The law – s.213 IA 1986

S.213 IA 1986 states that: “If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose…the court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper”.

Tradition argued that s.213 IA 1986 is limited in scope to those persons who are involved in the management or control of the relevant company (i.e. “insiders”). It argued that Tradition was an “outsider” and s.213 IA 1986 did not apply.

The law – s.32 LA 1980

The Dishonest Assistance Claim would ordinarily have had a limitation period of six years from the date of the dishonest assistance, in this case running to 2015 and six years from when the fraudulent trading took place in 2009.

This six-year time period can though be extended by s.32 LA 1980 which states that the period of limitation shall not start until the claimant discovered the fraud or concealment, or could with reasonable diligence have discovered it (in cases where the claim is based on the defendant’s fraud or where it relates to the claimant’s right of action being deliberately concealed by the defendant).

The law – s.1032 CA 2006

Closely linked to the Dishonest Assistance Claim is s.1032 CA 2006, which allows a court to give directions to place a dissolved company or a company struck off the register of companies and all other persons in the same position as if the relevant company had not been dissolved or struck off the register.

During the period in which the clock was running on the limitation period, N Ltd and I Ltd were both dissolved and subsequently restored to the register of companies at different times. N Ltd and I Ltd argued that as the two companies did not have any directors or officers when dissolved, they could not have reasonably discovered the fraud by Tradition until the companies’ subsequent restoration to the register.

The decision – High Court

In relation to the Fraudulent Participation Claim, the High Court held that s.213 IA 1986 applied and Tradition fell within the scope of s.213 IA 1986, despite not being an “insider”.

In relation to the Dishonest Assistance Claim, the High Court held that the claim was time-barred and the clock had run out as regards the limitation period. The High Court found that excluding the time a company spent dissolved before being restored from the limitation period would undermine and be contrary to s.32 LA 1980 – the dissolution of the relevant companies should not have prevented discovery of the fraud applying some reasonably level of diligence.

The decision – Court of Appeal

Tradition proceeded to appeal the High Court’s decision in relation to the Fraudulent Participation Claim while the Claimants appealed the Dishonest Assistance Claim ruling. The case subsequently continued to the Court of Appeal which ultimately dismissed both claims.

The Court of Appeal held that s.213 IA 1986 was not limited to only those persons involved in the management and control of a company and that the legislation includes third parties and “outsiders” (provided that they were knowingly parties to the fraudulent activities), explaining that this interpretation of the legislation was consistent with its statutory purpose (i.e. holding parties involved in fraudulent trading liable to compensation the creditors of the fraudulent company).

As regards the limitation period, the Court of Appeal found that s.32 LA 1980 did not apply on the facts and that the clock continued to run during the period in which the companies were dissolved.

Although the Court of Appeal found s.32 LA 1980 did not apply, the courts still had the discretion under s.1032 CA 2006 to extend the limitation period. Under s.1032 CA 2006, the Claimants needed to demonstrate that it was probable that, if not for the earlier dissolution of the companies, the Claimants would have brought their claim within the limitation period. The Court of Appeal found against the Claimants on the basis that they had not sufficiently demonstrated what would have occurred had the dissolutions not taken place.

The decision – Supreme Court

On appeal by Tradition, the Supreme Court upheld the Court of Appeal’s decision as regards s.213 IA 1986 and further adding that “there is nothing in the statutory context [of s.213 and the IA 1986] which militates against giving the critical statutory words their natural meaning”. Tradition’s appeal was therefore dismissed.

The Supreme Court further upheld the Court of Appeal’s decision in stating that the Dishonest Assistance Claim was time-barred and also in relation to s.1032 CA 2006 and finding that there was nothing which supported N Ltd and I Ltd’s interpretation of the legislation to mean that there must be directors or officers who could have reasonably discovered the fraud. The burden remained on the Claimants to prove that they could not have discovered the fraud with reasonable diligence, but had failed to do so. Reasonable diligence presumably could have included restoring the companies to the register in order to investigate the claims.

The Court held that agreeing with N Ltd and I Ltd’s interpretation of s.1032 CA 2006 would be contrary to the purpose of s.32 LA 1980 as it would allow for every company that is restored to the register of companies to rely on the argument that they had no directors or officers during the dissolution period, thereby always benefitting from s.32 LA 1980.

Take aways

Bilta v TFS sends a clear message: those persons falling outside of the management and control of a fraudulent company – whether they be advisors, consultants or financiers – cannot assume immunity from liability in fraudulent trading claims. For those operating on the periphery of insolvent (or borderline insolvent) companies that are involved or might be involved in fraudulent conduct, the risk of falling with the scope of s.213 IA 1986 should not be viewed as a remote possibility, but a real consequence of passive complicity.

The Fraudulent Participation Claim appears to have been brought only against Tradition itself, with no mention of its directors. While the judgment does not address this point directly, it leaves open the possibility that s.213 IA 1986 could, in principle, extend to directors of third party companies too.

This piece was written by Sanya Bhambhani with input from Henry Humphreys, Robert Humphreys and Doug Rofe.  As ever, if you have questions about any of the issues raised in this Insight piece or are unsure as to your position then do please reach out to a member of the team here at HLaw if you would like assistance working out if there are areas of potential exposure for you and/or your company.

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