Bilta (UK) Ltd & Ors v Nazir & Ors

The ex turpi causa defence does not defeat a company’s claim where the alleged fraud was directed at the company and the breached duty extended to protecting creditors. In an insolvency or potential insolvency, directors’ duties include proper regard for creditors’ interests. A third party who dishonestly assists or conspires in the directors’ breach cannot be in a better position than the directors.

Section 213 of the Insolvency Act 1986 has extra-territorial effect where the company’s business and fraudulent purpose cross national boundaries. A claim seeking compensation for a conspiracy, to form a fund for creditors, is not an attempt to enforce a foreign revenue law.

Bilta, a company in liquidation, traded in carbon credits and incurred substantial unpaid VAT liabilities. Its liquidators joined claims under section 213 of the Insolvency Act 1986. The claims against Jetivia and its director alleged conspiracy, dishonest assistance and participation in fraudulent trading.

Jetivia and its director applied for summary dismissal, arguing that the claims were barred by ex turpi causa, that section 213 had no extra-territorial effect, and that the claims indirectly enforced a foreign revenue debt. The court considered the scope of Stone & Rolls Ltd v Moore Stephens, the directors’ duties under the Companies Act 2006, and the international operation of insolvency legislation.

1. Application dismissed. The claims by Bilta and its liquidators against Jetivia and its director were not summarily dismissed.
2. The majority reasoning in Stone & Rolls Ltd v Moore Stephens was confined to cases where the relevant duty did not extend to interests beyond those of the fraudsters in corporate form. The alleged conspiracy in the present case was directed at Bilta and deprived it of funds needed to meet its VAT liabilities. Bilta was therefore pleaded as the victim, not a participant or beneficiary, of the fraud.
3. Where a company is insolvent or likely to become insolvent, section 172(3) of the Companies Act 2006 requires directors to consider and act in the interests of creditors. The creditors’ interests were within the scope of the duties allegedly breached by Bilta’s directors. The ex turpi causa defence was therefore unavailable to the directors, and could not be available to parties alleged to have dishonestly assisted or conspired with them.
4. Section 213 of the Insolvency Act 1986 applied to conduct outside the United Kingdom. Its references to “any business” and “any person”, together with the international nature of corporate insolvency and the absence of a territorial limitation, supported that construction. The provision was directed to recovering assets or compensation for the benefit of the company’s creditors wherever resident.
5. The claims did not enforce a foreign revenue law. They sought compensation for an alleged conspiracy, producing a fund from which HMRC and other creditors might receive payment. No question of comity justified summary dismissal.
6. The existence of both common-law and section 213 claims did not justify extending ex turpi causa. Relief could be directed to creditors and innocent shareholders through the court’s discretion under section 213(2) and the principles applied in the cited authorities.