Short Summary

In the recent case of Bilta (UK) Ltd and Others v Tradition Financial Services Ltd [2025] UKSC 18, the court addressed two important and complex issues arising out of the insolvency of various companies who, with the assistance of a third party, had engaged in fraudulent activities prior to being wound up.

Bilta (UK) Ltd (“Bilta”) was one of five connected companies, the others being Nathanael Eurl Ltd (“Nathanael”), Inline Trading Ltd (“Inline”), Weston Trading UK Ltd (“Weston”) and Vehement Solutions Ltd (“Vehement”). Those companies were all incorporated on different dates, and two of the companies, Nathanael and Inline were subsequently struck off of the Companies Register following abandonment by their directors.

The companies were then reinstated to the Companies Register pursuant to court orders. All five Companies were subject to Compulsory Liquidation Orders.

Similar claims were brought by the liquidators of all five companies, against Tradition Financial Services Ltd (“Tradition”), for dishonest assistance and under the fraudulent trading provisions of the Insolvency Act 1986 (Section 213).

In the High Court it was determined that the claims brought against Bilta, Weston and Vehement were time-barred and the claims failed in their entirety. No appeal was pursued on those cases. In the claims against Nathanael and Inline, the High Court determined that the dishonest assistance claims were time-barred, but that the claims under Section 213, where limitation was not an issue, succeeded on the basis that Tradition fell within the meaning of that provision.

Tradition appealed, asserting it did not fall within the scope of Section 213 and the Claimant Companies cross-appealed the decision that the dishonest assistance claims were time-barred. The Court of Appeal dismissed both the appeal and cross-appeal, following which further appeals were made to the Supreme Court.

The two key issues that arose before the Supreme Court, on which judgment was handed down on 7 May 2025, were:

1. Does the meaning of “any persons” within s213 of the Insolvency Act 1986 extend to include third parties who are not officers of or otherwise connected to the companies in liquidation. On this the Supreme Court concluded that the statutory provisions were to be read with the words given their normal meaning, so that a claim under this provision could be brought against any third party who were knowingly parties to a company carrying out fraudulent activities.
2. In respect of the companies that were struck off, could the claimant companies rely upon Section 32 of the Limitation Act 1980 to extend the limitation period on the basis that the fraud was concealed by the directors who abandoned the companies and, resultingly, the fraud could not reasonably have been discovered until after the companies were reinstated. On this issue it was accepted by the parties that the burden of proof fell on the party seeking to rely on the statutory provision (in this case, the Claimant companies). The Claimants argued that Section 1032(1) of the Companies Act 2006, relating to the reinstatement of companies struck off from the Companies Register, effectively meant that the companies had no officers who could exercise the reasonable diligence to discover the fraud. The Supreme Court determined that the meaning and effect of Section 1032 did not extend so far and that the question of whether or not a company has officers when dissolved was to be answered “on the balance of probabilities as a question of fact”. In this case, it was held that the Claimants had failed to adduce sufficient evidence to meet their burden of proof.

Background of Bilta (UK) Ltd and others v Tradition Financial Services Ltd [2025] UKSC 18

In and around 2009 the, at that time, insolvent claimant companies, Bilta, Nathanael, Inline, Weston Trading and Vehement, were found to be involved in missing trader intra-community fraud (“MTIC fraud”). MTIC fraud broadly involves companies accumulating large VAT liabilities which are not accounted to HMRC, with the companies paying the VAT receipts to third parties before going into insolvent liquidation. This requires multiple back-to-back high value transactions at speed. In this case the Defendant, Tradition, brokered deals for and on behalf of the claimant companies.

Once reinstated to the Companies Register by Court order, on 8 November 2017 the claimant companies and their respective liquidators brought proceedings against Tradition, on the basis that Tradition had (a) pursuant to s213 of the Insolvency Act 1986 (IA 1986), knowingly participated in the fraudulent activity, and (b) dishonestly assisted the directors of the companies in breach of their fiduciary duties.

Partial settlement meant only two issues were brought to the Court of Appeal in 2023 specifically in relation to claims brought by Nathanael and Inline, namely: -

1. Whether Tradition could be liable for knowingly participating in the fraudulent activities within the meaning of Section 213 of the IA 1986; and
2. Whether the claims in dishonest assistance were statute-barred.

Clarification on these questions was provided by the UK Supreme Court on 7 May 2025, and commentary on the findings are set out herein.

Is the scope of Section 213 of the Insolvency Act 1986 is limited to persons involved in the management or control of the company?

Section 213 IA 1986 provides that if, within winding up proceedings, it appears that business has been carried out for fraudulent purposes, or with intention to defraud others, the Court may declare that “any persons who were knowingly parties to the carrying on of the business” are liable to make contributions to the company’s assets, as the Court thinks proper. On the face of the wording, “any persons who were knowingly parties” affords for a wide definition of persons to whom the provision applies. Therefore, ambiguity existed around Section 213 as to whether a person needed to be in a position of management or control of the company to be found liable.

It was Tradition’s position that they could not be liable under Section 213, as they were not in a position of management or control over the claimant companies. Both, the High Court and the Court of Appeal rejected this argument in 2022 and 2023, respectively.

The Supreme Court, in their Judgment dated 7 May 2025, applied a well-established approach to statutory interpretation, whereby meaning is derived from the words used by Parliament while having regard to the statutory context and legislative history of the provision. Firstly, it was considered there was nothing within the natural meaning of the words in Section 213 “which restricts the scope of the provision to directors and other ‘insiders’ who were directing or managing the business of the company.”

In respect of statutory context, a comparison was drawn other provisions of the IA 1986. For example, Section 216, which restricts the re-use of company names on insolvent liquidation, and Section 212, which provides remedies against delinquent parties in winding up proceedings, both define persons to whom the provisions apply more narrowly, with qualifications such as officer, manager, director or liquidator. This contrast indicates the wider definition of persons subject to Section 213 was intended by Parliament in drafting the same, so there was “nothing in the statutory context which militates against giving the critical statutory words their natural meaning”.

The Court then looked at the legislative history of the IA 1986, which was said to point to a “parliamentary purpose of expanding the range of persons targeted by the fraudulent trading provision”. The Court considered the 1945 Cohen Report, which sought to reform company law. The Report recommended civil liability be extended to “those who were knowingly parties to the frauds”, wording now seen in Section 213 itself. This again compounded the view that the words of the statutory provision should be given their “natural meaning”.

For these reasons, the Supreme Court upheld the decision of the Court of Appeal, in finding that Section 213 IA 1986 is not limited to persons involved in the management or control of a company.

Does a limitation clock on a fraud claim continue to run while a company is struck of the Companies Register?

Pursuant to Section 9 of the Limitation Act 1980 (LA 1980), action to recover any sum shall not be brought after the expiration of six years from the date on which the cause of action accrued. As the Claims brought under Section 213 IA 1986 could only be brought by a liquidator in the course of winding up proceedings, the 6-year limitation period ran from the date of the Companies’ respective winding up orders. In respect of Nathanael and Inline, the Section 213 claims were brought within time, so no issue arose in that regard at all.

However, the limitation periods for the claims of dishonest assisted ran from a much earlier time, that being the initial cause of action, i.e. the “perpetration of the MTIC fraud between May and July 2009 (inclusive)”. As such, in 2022 the High Court found all five claims were statute barred.

On the dishonest assistance claims, Nathanael and Inline, were granted permission to appeal. A general chronology of these two companies’ dishonest assistance claims are as follows: -

Nathanael and Inline said their claims enjoyed the benefit of Section 32 of the LA 1980, the effect of which pauses the clock on limitation for cases concerning fraud until the point at which the plaintiff has discovered the fraud or could with reasonable diligence have discovered it. The question was therefore whether they established an entitlement to a postponement of the running of time, until a date less than six years before they issued their claim. They would have to show that they did not discover and could not with reasonable diligence have discovered the fraud before 8 November 2011.

The Court addressed the “difficulty” in applying Section 32, as for 9 and 11 months (respectively) before the limitation cut-off date, 8 November 2011, both companies had ceased to exist. The fraudulent directors appointed in 2009 were well aware of the fraud, however “their knowledge of the fraud is not to be attributed to the companies”. After their strike off, the companies had no officers capable of discovering the fraud until the liquidators were appointed in 2013 and 2015, respectively.

Section 1032(1) of the Companies Act 2006 (CA 2006) states that when a company is struck off the Companies Register, the general effect of its restoration is that “the company is deemed to have continued in existence as if it had not been dissolved or struck off the register”. Further, and Section 1032 (3) CA 2006 states the Court may make provision “for placing the company and all other persons in the same position… as if the company had not been dissolved…”

The claimant companies argued that, both Section 32 LA 1980 and Section 1032 CA 2006 meant that during the period where the companies were stuck off the Companies Register, they had a “bare existence… with no other features: no directors, and no-one else… who could have exercised reasonable endeavours to discover the fraud”, therefore the 6 year limitation period could not run until after their restoration.

They alternatively argued that, during the stuck off periods they should at least be deemed to have had the fraudulent directors in place, whose knowledge could not be attributed to the companies. However, the High Court and Court of Appeal rejected both arguments, finding that the companies should be deemed or assumed to have had in place reasonably honest and competent directors before 8 November 2011.

The question was one which the Supreme Court said was to be determined on the facts, to be established by the Claimant as the party seeking to rely on and benefit from Section 32. The Supreme Court considered the Claimants’ arguments, but said that they failed to consider “the counterfactual question: if the companies had not been dissolved, could they with reasonable diligence have discovered the fraud?”

On this basis, the Supreme Court found Nathanael and Inline failed to discharge the burden of proving that they could not with reasonable diligence have discovered the relevant fraud, the dismissed the appeals. The effect of this decision is that the limitation clock for a claim involving fraud will continue to run while a company is stuck off the Companies Register.

Written by: Sarah Rochester, Trainee Solicitor, and Uday Patel, CS Litigation Partner 

Please contact us if you would like more information about the issues raised in this article or any aspect of debt recovery on 020 8290 7400 or email info@jpcreditsolutions.co.uk

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