Supreme Court confirms broader scope for recovery in fraudulent trading claims
The Supreme Court recently provided its decision on whether a financial services company could be pursued by liquidators under section 213 of the Insolvency Act 1986.
On 7 May 2025, the Supreme Court provided its decision in the Bilta (UK) Ltd (in liquidation) and others (Respondents) v Tradition Financial Services Ltd (Appellant) [2025] UKSC/2023/0033. One of the questions being asked of the Court by Tradition was whether it could be pursued by liquidators under section 213 of the Insolvency Act 1986 (the Act), being a claim for fraudulent trading, where it had no role in the control or management of the liquidated companies in question. The other point of Tradition’s appeal related to limitation, which is not considered in this article.
The Facts
The facts of the Tradition decision relate to a VAT fraud being carried out by the respondent companies, where they would trade carbon credits under the EU Emissions Trading Scheme. They would obtain carbon credits from an EU country which was VAT-free and sell them with VAT in the UK, resulting in a fraudulent VAT liability which eventually resulted in their insolvency. Tradition brokered the carbon credits trades on behalf of these companies.
The liquidators of the fraudulent companies subsequently brought a claim against Tradition pursuant to section 213 of the Act, on the basis that Tradition were aware of the scheme being carried out and therefore of the intention to defraud creditors. It was an assumed fact that Tradition was aware that the companies were unlikely to be legitimate, and the intention was to amass VAT. On this basis, Tradition should contribute towards the insolvency. The liquidator’s claim had been successful in the High Court and the Court of Appeal, prompting Transition’s appeal to the Supreme Court.
The Outcome
In summary, Transition’s appeal was dismissed. The Supreme Court concluded that there was no reason to depart from the natural meaning of section 213 of the Act, which did not limit potential claims only to those who exercised control of management of the fraudulent entity. On the contrary, such a wide scope for claims was intended considering the wording of other sections of the Act, for example section 212 of the Act, which sets out specific individuals that the section applies to and therefore an explicit narrow scope (for more information about misfeasance claims, see our earlier blog – Considerations for Directors Facing Potential Insolvency).
The Tradition decision serves as a useful reminder of the caution which needs to be exercised in the course of business. While the question of whether there was intent to defraud will no doubt be a factual matter, section 213 of the Act represents a long-reach tool for office-holders to recover sums for creditors and a potential sting in the tail for entities which choose to engage in potentially illegitimate business activities.
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