Bilta (UK) Limited (in liquidation) & Ors v SVS Securities plc

The court decided two principal contested issues arising from claims brought by five insolvent companies (the Claimants) arising out of MTIC (missing trader intra-community) fraud conducted in the carbon credit (EUA) market in 2009. First, the court held that the Claimants could not rely on section 32 of the Limitation Act 1980 to save their dishonest assistance claims against Tradition Financial Services Limited (TFS): time began to run no later than the Claimants' provisional liquidators' appointment on 29 September 2009 and, on the evidence, the Claimants could, with reasonable diligence, have investigated and pleaded a viable case well before the relevant cut-off. The limited post-2009 receipt of the Karra/Bullen transcript did not postpone time for limitation purposes.

Second, the court held that claims under section 213 of the Insolvency Act 1986 (fraudulent trading) fall within the proper scope of that provision and are not excluded as a matter of law where the defendant is an outsider who knowingly participated in or assisted the carrying on of the business for a fraudulent purpose. The judge adopted the wider construction of section 213 supported in Neuberger J and endorsed by the Court of Appeal in Bank of India v Morris, and rejected arguments that section 213 should be limited to persons exercising management or control.

Background and parties: The proceedings were commenced by the liquidators of five companies (Bilta, Weston, Nathanael, Inline and Vehement) against multiple defendants for losses flowing from MTIC fraud in summer 2009 in the trading of EU allowances (EUAs). Separate proceedings were issued against Tradition Financial Services Limited (TFS) on 8 November 2017. By the time of trial most defendants had settled or been stayed and TFS remained the last defendant.

Nature of the claims and procedural posture: The Claimants advanced (i) dishonest assistance claims against TFS arising from spot trading in EUAs in May–July 2009 and (ii) alternative claims under section 213 of the Insolvency Act 1986 for fraudulent trading. The parties reached a partial confidential settlement which left two live issues: whether the dishonest assistance claims were time-barred by the Limitation Act 1980 (principally s.32), and whether claims under s.213 properly extend to an outsider such as TFS.

Evidence and issues: The Claimants relied upon the Karra/Bullen telephone transcript (a July 2009 call, but only received by the liquidators in June 2016) and the contemporaneous HMRC material which underpinned the provisional liquidators' appointment on 29 September 2009. The Limitation issue required the court to decide when the section 32 exception was triggered and what a reasonably diligent investigation would have revealed. On s.213 the court had to decide whether the statutory language and authorities supported liability for outsiders who knowingly participated in the fraudulent carrying on of the company’s business.

Court’s reasoning on limitation: The judge set out applicable principles from authority on s.32, including that the burden rests on the claimant to show it could not, with reasonable diligence, have discovered the fraud earlier and that the operative test is whether a claimant could plead a viable statement of case. The court found that the liquidators had actual knowledge of HMRC’s investigatory material when they were appointed on 29 September 2009 (Smallbone and Sawyer affidavits) and that this information put them on notice to investigate brokers such as TFS. The judge concluded that, on the evidence, the Claimants failed to discharge the burden of proof under s.32: they could, with reasonable diligence, have been in a position to plead dishonest assistance well before the relevant limitation cut-off. The court also addressed the position of two companies (Nathanael and Inline) that had been struck off and restored and concluded the statutory deeming effect of restoration (Companies Act 2006 s.1032) did not avoid limitation running during their period of non-existence.

Court’s reasoning on section 213: Considering prior authority (including Banque Arabe Internationale d’Investissement v Morris and Bank of India v Morris) the court concluded that section 213 may extend to outsiders who knowingly participate in or assist the fraudulent carrying on of a company’s business, provided the knowledge requirement is met. The judge rejected a restricted construction limited to those exercising management or control and determined that the Claimants’ pleaded s.213 claims were not outside the scope of the statute as a matter of law.

Result and consequential matters: The judge held the limitation defence succeeded and that the s.213 claims did not fail as a matter of law; consequential issues including costs and further directions were left for further hearing. The judge indicated a provisional view to give permission to appeal on the s.213 point.

This was a first-instance judgment. The court held that (1) the Limitation Defence succeeds: the Claimants have not discharged the burden under section 32 of the Limitation Act 1980 and the dishonest assistance claims were time-barred because the trigger for investigation arose no later than the provisional liquidators’ appointment on 29 September 2009 and a reasonably diligent inquiry would have enabled a viable pleading well before the limitation cut-off; (2) the claims under section 213 of the Insolvency Act 1986 are within the scope of that section and do not fail as a matter of law merely because the defendant was an outsider rather than a director or controller. Costs and consequential directions were reserved and the judge indicated he would consider giving permission to appeal on the s.213 point.