Directors’ duties and Corporate insolvency

1 June 2025

Not just directors, management or insiders: expanding the scope of fraudulent trading liability

In short

In a significant development for corporate fraud and insolvency law, on 7 May 2025 the UK Supreme Court delivered its judgment in Bilta (UK) Ltd (in liquidation) (Bilta) v Tradition Financial Services Ltd (Tradition) [2025] UKSC 18, involving complex issues of fraudulent trading and dishonest assistance.

The decision is significant in that it clarifies the scope and interpretation of:

1. Section 213 Insolvency Act 1986 (IA 1986) concerning ‘fraudulent trading’ and whether liability is limited only to individuals who manage or control companies; and

2. Section 32 of the Limitation Act 1980 (LA 1980) concerning ‘the postponement of limitation period in case of fraud, concealment or mistake’ and how that interacts in the context of dissolved and subsequently restored companies.

Tradition argued that liability under section 213(2) of the IA 1986 applies only to individuals who manage or control the fraudulent business, relying on s993 of the Companies Act 2006 (CA 2006), which concerns criminal liability for fraudulent trading to argue a more restrictive interpretation of section 213(2) of the IA 1986. The UK Supreme Court dismissed this argument, ruling that fraudulent trading claims can be brought against anyone who knows that a company’s business is being carried fraudulently and then dishonestly assists in, or contributes to, the fraudulent breach of duty committed or procured by those controlling the company within the remit of section 213 of the IA 1986.

Questions also arose around how a company’s dissolution and restoration to the register of companies interacts with the test for postponement contained in section 32 of the LA 1980 in respect of the dishonest assistance claim, namely: whether certain of the claimants could have during their dissolution, with reasonable diligence, discovered the fraud. If they could, then the clock on the limitation would begin to run. If not, then the limitation period would have paused. The UK Supreme Court clarified that the restoration of a dissolved company does not automatically extend the limitation period for bringing claims. To benefit from an extension under section 32 of the LA 1980 a party must demonstrate – the burden of proof being on the claimants – that the fraud could not have been discovered with reasonable diligence during the period of dissolution. The UK Supreme Court found that the claimants failed to meet this burden and so the dishonest assistance claim was time barred.

Background

The UK Supreme Court’s consideration of the two provisions arises out of a “missing trader intra-community” (MTIC) VAT fraud that took place in the summer of 2009. MTIC fraud involves the theft of VAT from governments, by exploiting EU Member States’ varying VAT regimes and rules. Companies work together to quickly run up large VAT liabilities to national revenue authorities, pay their VAT receipts to third parties and then enter insolvent liquidation.

This MTIC fraud concerned the trading of carbon credits under the EU Emissions Trading Scheme (also known as EU Allowances).

Five companies – (i) Bilta, (ii) Weston Trading UK Ltd (Weston), (iii) Nathanael Eurl Ltd (Nathanael), (iv) Vehement Solutions Ltd (Vehement), and (v) Inline Trading Ltd (Inline) (together the Five) – engaged in such trading and subsequently entered insolvent liquidation.

The liquidators allege that Tradition, a brokerage firm, facilitated the fraudulent transactions by brokering trades it knew or suspected were illegal, allowing the Five to trade credits in order to amass VAT.

The Five and their liquidators issued proceedings against Tradition on 8 November 2017, alleging:

i) Tradition was liable for having dishonestly assisted the Five’s directors to breach their duties as directors; and

ii) Tradition had knowingly participated in the fraudulent trading of the business of the Claimants, in violation of section 213 of the IA 1986.

Issues

Following cross-appeals, the UK Supreme Court considered two primary legal questions:

1. The scope of section 213 of the IA 1986: whether it is possible to make a person liable as a party to the carrying on of a business for fraudulent purposes (under s213) if they did not exercise management or control of the company in question; and

2. Limitation under section 32 of the LA 1980: where a claimant company has been struck off and then subsequently restored to the register of companies, what is required for the limitation period to be extended (pursuant to section 32) on the basis that it could not with reasonable diligence have discovered a fraud during the period it was dissolved.

Issue 1 – section 213 of the IA 1986

Section 213 IA 1986 states:

“(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect.

(2) The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper.”

The UK Supreme Court looked closely at the wording of section 213 to assess the breadth of the provision. It took a somewhat purposive approach to interpreting section 213, noting at paragraph 36 (inter alia): “Liability under section 213(2) depends upon dishonest participation and it exists to discourage such participation.”

It assessed that for section 213(2) of the IA 1986to operate, three elements must be met:

1. The person must be a party to the carrying on of the business. This was unlikely to include persons involved in a one-off fraudulent transaction;

2. Being party to the carrying on by the company of a fraudulent business does not extend to a mere failure to advise; and

3. The person liable must have had an active involvement in the carrying on of the fraudulent business by the company.

Beyond these three limitations, the UK Supreme Court found that there was nothing else in section 213(2) of the IA 1986 which restricts the scope of the provision to directors, management or insiders of a company.

It assessed that the natural meaning of “any persons” is just that, subject to the above limitations.

It extends to persons “dealing with the company if they knowingly were parties to the fraudulent business activities in which the company was engaged” (paragraph 26), as was the case with Tradition.

The UK Supreme Court also noted that provisions neighbouring section 213 IA 1986 in the Act had the target of their sanctions clearly and narrowly defined, and that in differentiating between exercising managerial control of a company and taking part in the carrying on of a business in these provisions, Parliament had envisaged liability for different types of involvement in a business.

The UK Supreme Court therefore dismissed Tradition’s appeal.

Issue 2 – section 32 of the LA 1980

The second issue was whether the dishonest assistance claim of Nathaneal and Inline (the only two of the Five successful in their appeal), which had been dissolved and later restored to the companies register, were time-barred.

It raises a question of how the test in section 32(1) of the LA 1980(whether the claimant could with reasonable diligence have discovered the fraud, concealment or mistake) operates during the period of the company’s dissolution.

Nathanael and Inline argued that they should each benefit of section 32 of the LA 1980, which states:

“[…] where in the case of any action for which a period of limitation is prescribed by this Act, either—

(a) the action is based upon the fraud of the defendant; or

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

The below table provides an overview of the corporate registration history of Nathanael and Inline.


Activity	Nathanael	Inline
Fraud takes place	May – July 2009	May – July 2009
Struck off and dissolved	1 February 2011	7 December 2010
Restored to register by HMRC	19 March 2012	8 June 2015
Order to be wound up submitted by HMRC	19 March 2012	8 June 2015
Liquidators appointed	19 August 2013	8 June 2015
Claim form issued	8 November 2017	8 November 2017

As the judgment clearly noted at paragraph 65, dishonest assistance claims have a primary limitation period of 6 years.

The UK Supreme Court confirmed that dissolution of a company does not automatically suspend or extend the limitation period. The effect of section 1032(1) of the CA 2006, which deals with court ordered restoration, is that the companies are deemed never to have been struck off, but rather to have continued in existence.

The UK Supreme Court further assessed that where fraud is alleged, the claimants must demonstrate either that there was deliberate concealment of the fraud, or that they could not have discovered it with reasonable diligence, even when the company was dissolved.

Nathanael and Inline’s arguments that they had a “bare” existence and there were no directors or others who could have tried to discover the fraud were not successful. Evidence suggested that there was information available to Nathanael and Inline indicating that Tradition knew about the scheme.

Nathanael and Inline’s appeals were therefore dismissed. The UK Supreme Court found that they had failed to discharge the burden, and their claims were therefore statute-barred.

Implications for Corporate Fraud and Insolvency Practitioners
The judgment is notable for several reasons:

• Liability: It widens the scope of persons who could be found liable for fraudulent trading under section 213, to include (at least) brokers and other intermediaries, even if they lack managerial control over the company.

• Due diligence: Entities engaged in transactions with companies must exercise care to avoid inadvertent involvement in fraudulent activities.

• Recovery: Liquidators have a broader remit to pursue claims against third parties where there has been fraudulent trading under section 213, potentially increasing recoveries for creditors.

• Limitation: Once again, fraud practitioners are reminded to be vigilant about limitation periods and ensure timely action upon discovering potential fraud.

Key takeaways

A brokerage firm that facilitated the fraudulent trading of EU carbon credits was itself found liable of dishonest assistance and for fraudulent trading. The UK Supreme Court unanimously found that the brokerage firm had dishonestly assisted the companies’ directors to breach their directors’ duties and had knowingly participated in the fraudulent trading of the business, despite the brokerage firm not exercising management or control of the companies in question.

The UK Supreme Court also confirmed that a company’s mere dissolution was insufficient for it to benefit from the postponement provision in section 32 of the Limitation Act 1980 in the context of a dishonest assistance claim. Instead, a party must prove that it could not have discovered the fraud with reasonable diligence, even during the period in which it was dissolved.
The decision broadens the scope of fraudulent trading liability under section 213 Insolvency Act 1986 to any persons who are “knowingly parties” to the carrying on of a business with intent to defraud creditors; third parties such as brokers and intermediaries can be held liable under this provision.
As a result, liquidators have a broader remit to pursue claims, potentially increasing recoveries for creditors, and directors engaged in transactions with companies must exercise care to avoid inadvertent involvement in fraudulent activities. It also underlines the importance of bringing fraud claims promptly.

The UK Supreme Court clarified that the restoration of a dissolved company does not automatically extend the limitation period for bringing claims