Responsibility for conducting fraudulent business is not only limited to management of entities through which it’s transacted, but extends to third parties who knowingly assist such companies. That’s the scope of Section 213 of the Insolvency Act 1986, the Supreme Court has confirmed in a major VAT fraud judgment handed down this month.
Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd [2025] UKSC 18 echoes earlier understanding of the Act’s provision, but usefully clarifies the extent to which Insolvency Practitioners may be able to recover sums from third parties in a fraud-related liquidation.
Bilta was a company used in a VAT fraud connected to carbon credit spot trading transactions which took place in 2009. Together with four further companies involved in the fraud, all in liquidation, Bilta was left with substantial liabilities to HMRC, which was the principal creditor. In 2017 the five companies and their liquidators issued a claim against Tradition, their broker in the carbon credit transactions.
Although a partial settlement had been agreed by the time the case was heard in the Supreme Court, it remained unclear whether Tradition could be considered an outsider that still fell within the scope of S.213.
Reviewing the judgment, law firm Mayer Brown helpfully points out the assumed facts on which the Court was asked to decide the case:
- In acting as the companies’ broker in the transactions, Tradition identified counterparties and negotiated terms for buying and selling the carbon credits.
- The broker was paid fees by volume traded.
- It acted as broker knowing that counterparties, including the five companies, were unlikely to be engaged in the legitimate spot trading of carbon credits and were accumulating VAT for the fraudulent scheme.
S.213 (2) says that “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 Supreme Court held that there is nothing in this language – not in previous iterations of the Insolvency Act 1996 – that suggested restrictions to the meaning “any persons” and therefore limits to the scope of S.213 (2) in respect of only “insiders”, when others had knowledge of fraudulent purposes when enabling such transactions. The appeal by tradition was therefore dismissed.
Bilta and others v Tradition may appear to be a complex, multi-party case involving specialist financial markets and large sums. Nonetheless, this recent confirmation highlights the potential to increase the pool of defendants targeted by insolvent companies and their liquidators for recovery amid allegations of fraudulent activity.
Written by Runita Kholia, Senior Analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.