The Supreme Court held that section 213 of the Insolvency Act 1986 (fraudulent trading) is not limited to company insiders but extends to outsiders who knowingly participate in a company’s fraudulent business. The Court also held that two dissolved-then-restored companies failed to prove entitlement to postponement of limitation under section 32 of the Limitation Act 1980.
Background
Bilta (UK) Ltd and four other companies were vehicles used in a missing trader intra-community (MTIC) fraud during the summer of 2009 involving spot trading in EU carbon credits (EUAs). The fraud exploited VAT-free imports between EU states and the subsequent addition of VAT on domestic sales. The companies ran up enormous VAT liabilities to HMRC, failed to account for the VAT, and went into insolvent liquidation. HMRC were the principal creditors.
Tradition Financial Services Ltd (‘Tradition’) was a broker that facilitated deals on behalf of companies dealing with SVS Securities plc, which purchased EUAs on a back-to-back basis for the claimant companies. On assumed facts, Tradition introduced certain companies to SVS knowing they were unlikely to be legitimate, without genuine ‘know your client’ inquiries, and in the knowledge that trading patterns were suspicious and linked to financial crime, including VAT fraud.
On 8 November 2017, the five companies and their liquidators issued proceedings against Tradition, bringing claims in (i) dishonest assistance in breaches of fiduciary duty and (ii) fraudulent trading under section 213 of the Insolvency Act 1986 (‘IA 1986’). The parties reached a partial settlement, leaving two issues for judicial determination on assumed facts: whether Tradition fell within the scope of section 213, and whether certain dishonest assistance claims were statute-barred.
The Issues
Issue 1: The scope of section 213 IA 1986
The central question was whether the phrase ‘any persons who were knowingly parties to the carrying on of the business’ in section 213(2) is confined to those exercising management or control of the company (Tradition’s ‘narrow interpretation’), or whether it extends to outsiders such as counterparties or brokers who dishonestly assisted or facilitated the fraudulent business.
Issue 2: Limitation and the dishonest assistance claims of Nathanael and Inline
Two of the claimant companies, Nathanael and Inline, had been struck off and dissolved before being restored to the Companies Register. They sought to rely on section 32(1) of the Limitation Act 1980 to postpone the running of the limitation period for their dishonest assistance claims. The question was how the section 32 test (‘could with reasonable diligence have discovered the fraud’) operated during periods when the companies were dissolved, given section 1032(1) of the Companies Act 2006 deems a restored company to have continued in existence.
The Court’s Reasoning
Issue 1: Section 213 applies to outsiders
Lord Hodge and Lord Briggs (with whom Lord Hamblen, Lord Burrows and Lord Richards agreed) undertook a comprehensive exercise of statutory interpretation. They began with the natural meaning of section 213(2), which uses the broad phrase ‘any persons who were knowingly parties to the carrying on of the business’. The Court identified three limitations inherent in the language: the person must be party to a business carried on fraudulently (not a mere one-off transaction); mere failure to advise is insufficient; and there must be active involvement. Subject to those limitations, there was nothing restricting the provision to insiders.
As a matter of ordinary language, the ambit of section 213(2) is not limited to those who perform a managerial or controlling role within the company concerned.
The statutory context strongly supported this reading. The Court contrasted the broad language of section 213(2) with the much more tightly defined targets of nearby provisions: section 212 (persons concerned in the ‘promotion, formation or management’ of the company), section 214 (directors and shadow directors), and sections 216–217 (directors and persons involved in management). Parliament plainly knew how to restrict these provisions to insiders and chose not to do so in section 213.
The legislative history further supported this interpretation. The Cohen Report (1945) recommended that the predecessor provision be ‘extended so as to apply not only to directors but also to other persons who were knowingly parties to the frauds’. Parliament responded with the broadened language now found in section 213(2). The Court rejected Tradition’s attempt to use transcripts of evidence before the Cohen Committee to narrow the provision’s scope, holding this offended constitutional principles about citizens being able to understand statutes from their text.
On the criminal analogy, the Court noted section 993 of the Companies Act 2006 uses substantially the same wording and rejected the submission that the presumption against doubtful penalisation should narrow the scope. There was no ambiguity; the outsider who knowingly participates in fraud is already within the criminal law as an aider and abettor; and knowing participation in fraud precludes sympathy.
The extent to which a counterparty must be involved in the carrying on of the fraudulent business may depend upon the facts. 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.
The Court surveyed a consistent line of authority including In re Gerald Cooper Chemicals Ltd, In re BCCI, Morris v Bank of India, and Bank of India v Morris, all pointing in the same direction. The Court concluded:
Third parties/outsiders who participate in, facilitate or assist fraudulent transactions by a company when they know that the company’s business is being carried on for any fraudulent purpose are within the ambit of that section.
Issue 2: Limitation – Nathanael and Inline
The Court held that section 1032(1) of the CA 2006 (deeming a restored company to have continued in existence) does not require the court to deem that the company had no directors or officers during the period of dissolution. Applying settled principles on statutory deeming from Fowler v Revenue and Customs Comrs, the deeming provision means only that the company is deemed to have continued to exist – no more and no less. Whether it should be assumed to have had competent officers is a separate, counterfactual question of fact.
The question whether it should be assumed during that period to have had competent directors or liquidators is to be answered by other means. Having such officers, or not having them, are not consequences which inevitably flow from it being deemed to have continued to exist.
A purposive construction of section 32 reinforced this analysis. If every restored company were automatically deemed to have had no officers, the postponement of the running of time would become a matter of course for dissolved companies, undermining the general purpose of section 32.
Since the two companies adduced no evidence on the counterfactual question of whether they could with reasonable diligence have discovered the fraud had they not been dissolved, and the burden was on them, they failed to establish their entitlement to the benefit of section 32. Their dishonest assistance claims remained statute-barred.
Practical Significance
This judgment authoritatively confirms that section 213 of the IA 1986 is not confined to company insiders. Brokers, counterparties, and other third parties who knowingly participate in or facilitate a company’s fraudulent business can be ordered to contribute to its assets. This substantially increases the pool of potential respondents in fraudulent trading claims, particularly in complex frauds such as MTIC carousel schemes where external facilitators play essential roles.
On limitation, the decision clarifies the interaction between section 32 of the Limitation Act 1980 and section 1032 of the CA 2006. Restored companies cannot simply assert that their dissolution left them with no officers and thereby automatically benefit from the postponement of limitation. They bear the evidential burden of demonstrating, on a counterfactual basis, that they could not with reasonable diligence have discovered the fraud. This is a significant constraint on the use of section 32 by formerly dissolved companies and reinforces the importance of adducing evidence on this point.
Verdict: Both Tradition’s appeal (on the scope of section 213) and Nathanael and Inline’s appeals (on limitation) were dismissed. The Supreme Court held that section 213 of the Insolvency Act 1986 extends to outsiders who knowingly participate in a company’s fraudulent trading, and that Nathanael and Inline had failed to discharge the burden of proving entitlement to postponement of the limitation period under section 32 of the Limitation Act 1980.
Source: Bilta (UK) Ltd v Tradition Financial Services Ltd [2025] UKSC 18
