Supreme Court Expands Scope of Fraudulent Trading Liability in Bilta (UK) Ltd v Tradition Financial Services Ltd

In a unanimous landmark judgment handed down in May 2025¹, the UK Supreme Court has confirmed that liability for fraudulent trading under s.213 of the Insolvency Act 1986 is not simply confined to those involved in the management or control of the fraudulent company (such as directors and shadow directors) but extends to any third party who knowingly participates in or facilitates fraudulent business.

The decision is not only relevant to liquidators (who are the only parties entitled to bring applications under s.213) but also creditors, who can take some comfort from the Supreme Court’s willingness to confirm the wider ambit of those who might be held liable for fraudulent trading.

Background

In the summer of 2009, Bilta UK Ltd, Weston Trading UK Ltd, Nathaneal Eurl Ltd, Vehement Solutions Ltd and Inline Trading Ltd (the Group Companies/Claimants) were together involved in a substantial VAT fraud known as “missing trader intra-community” fraud (MTIC Fraud).

In what Europol describes as a “highly complex form of tax fraud“² , causing billions of euros annually in tax losses, a typical MTIC Fraud involves some form of the following arrangement:

1. traders import goods from EU Member States (free from VAT).
2. the goods are then sold within the country into which they have been imported (with VAT added).
3. the traders choose not to satisfy VAT liabilities to HMRC, instead paying VAT receipts to third parties.
4. after a while, the traders abandon the company and permit it to become insolvent.

In this case, the fraud centered on spot trading in carbon credits under the EU Emissions Trading Scheme. The Group Companies entered liquidation between November 2009 and June 2015.

The Claim Against Tradition – Fraudulent Trading

In November 2017, the Claimants issued a claim under s.213 of the Insolvency Act 1986 (s.213) against Tradition Financial Services Ltd (Tradition). S.213 imposes liability on “any persons who were knowingly parties to the carrying on of the business” with intent to defraud creditors (in this case, HMRC). Tradition had acted as a broker in the trades, introducing counterparties and negotiating the terms on which carbon credits were bought and sold. The Claimants argued, among other things, that Tradition had knowingly participated in the fraudulent scheme and should therefore be required to contribute to the liquidation.

Tradition contended that s.213 only applies to persons with managerial or controlling roles within the company which had perpetrated the fraud (e.g. directors and shadow directors), such that s.213 did not apply in this case as Tradition merely acted as a broker. The Claimants, however, argued that s.213 applies to anyone, so long as they knowingly assisted or contributed to the carrying on by the company of any business which has been carried on with the intent to defraud creditors. The entire issue, therefore, fell on the interpretation of s.213.

Key Findings of the Supreme Court

The Supreme Court decisively rejected Tradition’s narrow interpretation of s.213. It held that liability for fraudulent trading is not restricted to those exercising management or control over the company. Instead, any third party who knowingly participates in the fraudulent business of a company may face personal liability under s.213 in the event of the company’s insolvency. This interpretation firmly places brokers, intermediaries, and other third parties within the scope of liability if they are found to have knowingly participated in or facilitated fraudulent business activity.

In reaching its conclusion, the Supreme Court applied well-rehearsed and established principles of statutory interpretation, emphasising that the Court must consider the “context of the statute as a whole and the historical context in which the statute was enacted…” Key points included:

• Legislative Structure: In contrast to the wording of s.213, the wording of surrounding provisions in the Insolvency Act 1986 referred to clearly defined categories of persons. For example, s.212 provides for remedies against delinquent directors; s.214 refers to wrongful trading against a director; s.216 prohibits directors and shadow directors from re-using company names after a period of time; and s.217 (personal liability for debts) applies to those involved in the management of the company. It follows that if Parliament intended to restrict s.213 to those with management or control of the fraudulent business, it would have done so (as it did with the surrounding sections). 
• Plain Meaning and Legislative History: There was nothing in the legislative history of s.213 which militated against a plain reading of the words “any persons who were knowingly parties to the carrying on of the business…”.

The Court was not shy in its willingness to confirm the scope of s.213, citing the well-known quote from Templeman J in In re Gerald Cooper Chemicals Ltd [1978] Ch 262, 268: “a man who warms himself with the fire of fraud cannot complain if he is singed.“

Importantly, however, the Court confirmed that active involvement is required to establish liability. Omissions by way of failure to advise or passive association with the fraudulent business would not be sufficient to attract liability under s.213.

Implications for Financial Intermediaries

The Supreme Court’s ruling is a welcome one for creditors and victims of financial fraud. Where a party knows of fraud and participates in it, they cannot absolve themselves from liability simply by asserting that they were an outsider. So long as they knowingly participated in the fraud, they will potentially be subject to liability and may have to make a personal contribution to the company’s assets in the event of the company becoming insolvent. The ruling serves as a warning to financial intermediaries, including brokers and trading platforms, who may have thought that they were otherwise protected.

Research conducted by Alexandra McCulloch, Trainee Solicitor.

Footnote

1. Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd [2025] UKSC 18.
2. https://www.europol.europa.eu/crime-areas/economic-crime/mtic-missing-trader-intra-community-fraud.