UK Supreme Court clarifies liability for fraudulent trading under the Insolvency Act not restricted to company insiders

The recent UK Supreme Court judgment in Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd [2025] upheld the Court of Appeal's broad interpretation of section 213 of the Insolvency Act 1986, deciding that its scope is not limited to directors or those otherwise implicated in the management of the fraudulent business. Third parties knowingly dealing with the fraudulent business are also at risk.   

The decision also addressed the issue of how the "reasonable diligence" test in section 32 of the Limitation Act applies, where a claimant company has been struck off and the question arises as to when the company should have discovered the fraud and the limitation period should start to run.

Section 213

Where a company is being wound up in circumstances in which its business has been carried on with intent to defraud creditors, section 213 provides that "any persons who were knowingly parties" to the carrying on of such business are liable to contribute to the company's assets to the extent the court sees fit. Section 213, therefore, provides insolvency practitioners with a useful statutory tool with which to pursue those who have defrauded creditors, provided the requisite intention can be established.

Bilta v Tradition Financial Services

The case concerned the use in 2009 of several companies as vehicles for a complex VAT fraud scheme, at the end of which a number of entities, including Bilta (UK), entered into insolvent liquidation owing substantial amounts to HMRC. On the assumed facts dealt with by the Supreme Court, Tradition Financial Services had acted as a broker within the fraudulent scheme.

Bilta's liquidators brought a claim against Tradition for fraudulent trading under Section 213, as well as a claim for dishonest assistance.

The two questions which fell to be determined by the Supreme Court were:

• whether the scope of section 213 was sufficiently broad to encompass third parties such as Tradition; and
• whether Bilta's dishonest assistance claims were time-barred.

Liability for fraudulent trading

Tradition argued that as a matter of statutory interpretation, section 213's application to "any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned" should be interpreted narrowly and was restricted to those exercising management or control over the company in liquidation.

Each of the High Court, Court of Appeal and the Supreme Court dismissed that argument. Giving the lead judgment in the Supreme Court, Lord Hodge and Lord Briggs observed that nothing in the language of section 213 restricted its scope to directors or other "insiders", and that third parties who transacted with the company could also be made liable, provided they had the necessary level of knowledge at the time.

They found support for their broad interpretation in the narrower wording found in adjacent sections of the Insolvency Act, including section 214 (wrongful trading) which explicitly applies to directors. Further, after examining the legislative history in detail, they found nothing to deter them from giving the words of section 213 their natural, broad meaning.

Limitation and company restoration

The Supreme Court also considered an issue relating to whether certain claims were time-barred, even though it was not of practical significance to the parties in view of the judgments on other issues. The court found the claimant companies' parallel claims against Tradition for dishonest assistance were time-barred, in circumstances where the claims were brought in 2017, more than six years after the alleged dishonest assistance took place in 2009. The court found the limitation period was not extended by section 32 of the Limitation Act 1980, which stops time from running in instances of fraud until the claimant discovers (or could with reasonable diligence have discovered) the fraud.

The claimant companies had been struck off and subsequently restored such that, under section 1032 of the Companies Act 2006, they were deemed to have continued in existence during the intervening period. They argued that they should be deemed to have continued in existence, specifically with the fraudulent directors in post (or with no directors), such that they had no competent officers in place and consequently could not have, with reasonable diligence, discovered the fraud for the purposes of section 32.

This argument was rejected by the Supreme Court, which determined that any assumption as to the officers deemed to be in post during the intervening period was a question of "counterfactual" fact to be demonstrated on the balance of probabilities by the party advancing that position. It did not flow directly from section 1032 (which deemed the companies to have continued in existence) or its interaction with section 32.

Osborne Clarke comment

The clarification on the scope of section 213 is arguably unsurprising on a plain reading of the statute, but will nonetheless be welcome to insolvency practitioners and creditors, as it provides clear authority for the pursuit of third parties who knowingly trade with insolvent businesses. It is, however, important in confirming the wider scope of potential defendants from whom money may be recovered in cases of fraudulent trading.

No prior authority existed on the interaction between section 1032 and section 32, but the Supreme Court's ruling makes clear that it will be an uphill battle for previously liquidated companies to argue that time should be paused for limitation purposes during their dissolution. It will be for those companies to make out a positive evidential case for any assumptions it invites the court to make in this regard.

This appears to be something of a policy decision based on the court being concerned about a defendant company being able to benefit (in terms of limitation periods) from being struck off the companies register as a result of its own failures.  This can be contrasted with the decision in OT Computers Ltd V Infineon Technologies AG [2021] EWCA Civ 501 where it was held that the reasonable diligence threshold (in section 32) would be different for a non-trading company in liquidation (managed by liquidators) than for a trading company.