Bilta (UK) Ltd v Tradition Financial Services Ltd

The Court of Appeal considered three issues on appeal: the breadth of persons liable under section 213 of the Insolvency Act 1986 for a company whose business was carried on for fraudulent purposes; the scope and effect of deeming provisions when a dissolved company is restored to the register (Companies Act 2006 s.1032); and a challenge to the first instance judge's costs exercise. The court held that section 213 is not confined to those who exercise managerial or controlling functions within the company but can reach third parties who knowingly participate in or assist the carrying on of the company’s fraudulent business; the civil liability under s.213 is focused on compensation of creditors and may legitimately extend beyond pure veil-piercing. On restoration, the correct approach to a deeming provision is to apply the statutory fiction only so far as its purposes require and not to assume inevitably that particular directors remained in office during dissolution; questions about what would have happened but for dissolution are matters of evidence for the court (Fowler v HMRC applied). Finally, the judge’s costs orders, in particular his treatment of pre-settlement costs, were within the broad discretion of a first-instance judge and not manifestly unjust.

Background and parties. The appeal arose from claims initially issued against multiple defendants in relation to a large missing trader intra-community (MTIC) VAT fraud involving spot trading in EU emissions allowances (EUAs). Tradition Financial Services Ltd (TFS) was sued by five claimant companies (and their liquidators) in claims including dishonest assistance in breaches of fiduciary duty and fraudulent trading under section 213 of the Insolvency Act 1986. After partial settlement, two discrete issues were litigated and determined by Marcus Smith J and are the subject of this appeal.

Nature of the legal proceedings and relief sought.

• The liquidators pursued contributions under section 213 for fraudulent trading.
• The companies pursued dishonest assistance claims; limitation defences under the Limitation Act 1980 (section 32) were raised.
• The parties agreed a settlement which left two legal issues to be decided by the court and provided for the court to determine costs.

Issues before the Court of Appeal. The court was asked to decide:

• whether the phrase "any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned" in s.213 is limited to persons exercising management or control within the company, or whether it can extend to third parties who knowingly participated in or assisted the fraudulent business;
• how far the deeming provision in Companies Act 2006 s.1032 operates on restoration to the register for limitation purposes and whether directors in office at dissolution must be assumed to have remained in office during dissolution;
• whether the judge's costs rulings, particularly as to pre-settlement costs, were wrong in principle or manifestly unjust.

Court’s reasoning and conclusions.

• Section 213: the court reviewed the statutory history and case law, including earlier Companies Act provisions, the Cohen Committee's recommendation, and authorities both wide and narrow in approach. Applying purposive interpretation (the primary purpose being compensation of creditors), the court concluded that s.213 can extend beyond those exercising managerial control and may impose accessory liability on third parties who knowingly and dishonestly participate in or benefit from the carrying on of a fraudulent business. The court emphasised that factual questions of degree and involvement remain for trial and that its conclusion did not fix the outer limits of s.213.
• Deeming provisions and limitation: the court applied Fowler v HMRC and related authorities to hold that a deeming provision should be applied only to the extent necessary for its statutory purpose and not to produce consequences outside that purpose. It rejected the proposition that s.1032(1) requires the automatic assumption that the same directors remained in office throughout dissolution or that a minimum number of competent directors must be assumed. Whether dissolution caused the inability to pursue claims is a question of fact; the claimants failed to discharge the factual burden under s.32 Limitation Act 1980 that they could not, with reasonable diligence, have discovered the fraud during dissolution.
• Costs: the judge’s division between pre-settlement and post-settlement costs and his decision that pre-settlement costs should generally be borne by each party were within his wide discretion in costs matters and not manifestly unjust. The judge’s detailed approach to issue-based allocation of post-settlement costs was not challenged on appeal.

Outcome and practical implications. The appeals were dismissed. The decision affirms a purposive, potentially broad scope for s.213 liability (subject to fact-specific boundaries) and confirms that deeming provisions do not carry inevitable assumptions about directors during dissolution; factual proof remains necessary when limitation is in issue. The judgment also confirms appellate reluctance to disturb first-instance costs discretion following settlement.

Appeal dismissed. The Court of Appeal held that (1) section 213 IA 1986 is not restricted to persons exercising managerial or controlling functions and can extend to third parties who knowingly participate in or assist a company’s fraudulent carrying on of business; (2) Companies Act 2006 s.1032’s deeming fiction must be applied only as necessary for its statutory purposes and does not mandate assuming that the same directors remained in office throughout dissolution—questions about what would have happened but for dissolution are matters of fact for the court; and (3) the first-instance judge’s costs orders, including his treatment of pre-settlement costs, were within his broad discretion and not manifestly unjust.

Appeal from judgments of Marcus Smith J in the High Court, Business and Property Courts (Chancery Division, Financial List): substantive judgment [2022] EWHC 723 (Ch) ; costs judgment [2022] EWHC 1431 (Ch). This judgment was given by the Court of Appeal, Civil Division: [2023] EWCA Civ 112.