Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd

The Supreme Court held that section 213(2) of the Insolvency Act 1986 is not confined to persons exercising management or control of the company’s business but extends to third parties, including counterparties, who knowingly participate in, facilitate or assist the carrying on of the company’s business for a fraudulent purpose (including by wilful blindness). The court applied established principles of statutory interpretation, gave the words of section 213 their natural meaning in context and rejected arguments that criminal provisions or particular strands of legislative history required a narrower construction.

The court also considered limitation questions affecting two claimants that had been dissolved and later restored. It held that section 1032(1) of the Companies Act 2006, which deems a restored company to have continued in existence, does not automatically create a fiction that the company had no officers during the period of dissolution for the purposes of postponing limitation under section 32 of the Limitation Act 1980. A restored company must still prove on the balance of probabilities that it could not, with reasonable diligence, have discovered the fraud; Nathanael and Inline failed to discharge that burden and their dishonest-assistance claims were statute-barred.

This dispute arose from an MTIC VAT fraud in 2009 involving trading in EU emissions allowances. Five companies which later went into liquidation (Bilta, Weston Trading UK Ltd, Nathanael Eurl Ltd, Vehement Solutions Ltd and Inline Trading Ltd) and their liquidators sued Tradition Financial Services Ltd. The pleaded claims were (i) dishonest assistance in breaches of directors’ fiduciary duties and (ii) contributions under section 213 of the Insolvency Act 1986 for knowingly participating in fraudulent trading. The parties settled in part and asked the court to decide two discrete legal issues on assumed facts.

• Issues:
  1. Whether section 213(2) is limited to insiders (directors or persons exercising management or control) or extends to outsiders, including counterparties, who knowingly participate in the fraudulent carrying on of the company’s business.
  2. Whether the dishonest-assistance claims of two companies (Nathanael and Inline), which had been dissolved and later restored, were time-barred because the six-year limitation period had run during their dissolution and whether section 32 of the Limitation Act 1980 was postponed by reason of restoration under section 1032 CA 2006.

The court, applying a purposive and contextual approach to statutory interpretation, considered the statutory language of section 213, its statutory context within the Insolvency Act, and relevant legislative history and authorities. It concluded that the natural meaning of "any persons who were knowingly parties to the carrying on of the business" includes outsiders who knowingly further or facilitate the fraudulent business. The court rejected the submission that the civil provision should be narrowly read because of the separate criminal provision, and it treated the requirement of knowing participation (including wilful blindness) as the limiting factor.

On limitation, the court analysed the interaction between section 32 Limitation Act 1980 and section 1032 CA 2006 (restoration to the register). It held that section 1032(1) only deems the company to have continued in existence and does not itself determine whether the company should be treated as having had officers (or not) during dissolution; that is a counterfactual question of fact to be decided on evidence. The restored companies bore the burden of proving they could not, with reasonable diligence, have discovered the fraud before the critical date; they failed to do so and their claims in dishonest assistance were statute-barred. The appeals (including Tradition's appeal on the scope of section 213 and the claimants' appeals on limitation) were dismissed.

Appeals dismissed. The court held that section 213(2) IA 1986 reaches outsiders (including counterparties) who knowingly participate in, facilitate or assist the carrying on of a company’s business for a fraudulent purpose, and that the deeming provision in section 1032(1) CA 2006 does not automatically prevent limitation running during dissolution; restored companies must prove on the balance of probabilities that they could not, with reasonable diligence, have discovered the fraud and Nathanael and Inline failed to meet that burden.

On appeal from the Court of Appeal: [2023] EWCA Civ 112; the matter was before the Supreme Court on appeals by Tradition and by Nathanael Eurl Ltd and Inline Trading Ltd arising from judgments below.