Can an “outsider” be held liable for fraudulent trading for transacting with a company engaged in fraudulent activity? Should the limitation period for claims accruing to a (restored) company be suspended for the period during which it was dissolved?

The Supreme Court addressed these questions on 7 May 2025 in Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd [2025] UKSC 18. Tim Symes, Alice Glendenning and Rafaella Salerno highlight the practical outcomes for creditors, officeholders and those implicated.

Background

The case concerns a form of VAT fraud called missing trader intra-community fraud (“MTIC”). This fraud involves companies importing VAT-free goods from another EU country, selling them with VAT, incurring enormous debts and becoming insolvent. Bilta (UK) Ltd (“Bilta”) and related companies within its group (the “Bilta Companies”) engaged in MTIC fraud and went into liquidation owing substantial liabilities to HMRC.

The trades constituting the MTIC fraud were brokered by Tradition Financial Services Ltd (“TFS”). The Bilta Companies and their respective joint liquidators (the “Claimants”) issued claims against TFS alleging:

• TFS dishonestly assisted in the breach of fiduciary duty owed by the Bilta Companies’ directors (the “Dishonest Assistance Claims”), and
• TFS knowingly participated in the Bilta Companies’ fraudulent trading and was liable to make a contribution to the companies’ assets under section 213 of the Insolvency Act 1986 (the “Fraudulent Trading Claims”).

At first instance, the court held that the Dishonest Assistance Claims were time-barred. However, the Fraudulent Trading Claims could be successful because, in principle, TFS fell within the scope of section 213 as a knowing party to the carrying on of the fraudulent business despite being a third-party services provider.

TFS appealed the decision on the Fraudulent Trading Claims, arguing that section 213 applies only to insiders exercising management or control in the company engaged in fraud, not outsiders.

The Claimants appealed the decision on the Dishonest Assistance Claims on the basis that two of the Bilta Companies had been struck off and dissolved for a period. They said:

• section 32 of the Limitation Act 1980 should operate to postpone the limitation period for the duration of dissolution because the fraud could not have been discovered with reasonable diligence before restoration
• the effect of section 1032 of the Companies Act 2006 (which deems a restored company “to have continued in existence as if it had not been dissolved”) was that, in the absence of a specific direction from the court to “place the company and all other persons in the same position as if [it] had not been dissolved”, no directors or other officeholders were to be treated as being in post during the dissolution, so no one could have discovered the fraud.

Decision

On appeal, the Supreme Court:

1. Dismissed the Claimants’ appeal and held that the Dishonest Assistance Claims were time-barred. The court said:
   1. All that should be “deemed” about restored companies was that they continued in existence during the dissolution period. The absence of officers during dissolution did not carry over into the counterfactual deeming world.
   2. Whether a restored company is deemed to have had officers during the counterfactual (who could have discovered the fraud for the purposes of section 32) is to be answered on the balance of probabilities on the evidence.
   3. Were section 1032 to be given the effect the Claimants were seeking, restored companies would be given carte blanche to rely upon the limitation period’s postponement because they could always demonstrate they could not have discovered the fraud with reasonable diligence.
   4. As the Claimants had not adduced any evidence to explain in the counterfactual what would have happened if the company had not been dissolved, section 32 was not engaged.
2. Dismissed TFS’ appeal, and the relevant Fraudulent Trading Claims succeeded. The court said:
   1. The natural meaning of “any persons who were knowingly parties to the carrying on of the business” in section 213 was wide enough to cover not only “insiders” but also persons who were dealing with the company.
   2. Such persons could include those who routinely transacted with the company in the knowledge that, by those transactions, the company was carrying on its business for a fraudulent purpose. The court concluded that liability under section 213 depended upon dishonest participation, and its purpose was to discourage such participation.

Practical implications

The court’s decision on the Fraudulent Trading Claims is a triumph for victims of corporate fraud and sends a strong message to any third parties under the impression they can assist fraudsters with impunity; the fact that they were outsiders will not render them immune from liability. It further widens the scope of possible remedial avenues for officeholders and their lawyers in their efforts to push the envelope in favour of creditors. However, the decision will not open the doors to a free-for-all against third parties. In every case, claimants will need to identify clear culpability, including knowledge of the fraudulent activity. For those implicated, wilful blindness is no defence. The court noted that “a man who warms himself with the fire of fraud cannot complain if he is singed”.

The court’s decision on the Dishonest Assistance Claims is less helpful for liquidators of restored companies. That said, the decision only confirms that a restoration order does not automatically result in the deeming of no officers during the counterfactual period of dissolution (with a consequent suspension of the limitation period until restoration). It is rather a question of evidence; if officeholders can discharge the burden of proof that there would have been no officers or only fraudulent directors during that period, there is still the possibility of limitation being suspended under section 32.

Partner Tim Symes’ comments on this case were reported in Law360’s coverage: UK Supreme Court Boosts Creditor Protection In Fraud Cases.

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