Julie Hunter, Partner in the commercial department at Stephensons, looks at section 213 of the Insolvency Act following a recent judgment handed down by the Supreme Court in the case of Bilta (UK) Ltd (In Liquidation) and others v Tradition Financial Services Ltd [2025] UKSC 18.

What is section 213 of the Insolvency Act 1986?

Section 213 of the Insolvency Act 1986 provides, under the heading ‘Fraudulent trading’:

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 another 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 liable to make such contributions (if any) to the company’s assets as the court thinks proper.

On 7 May 2025 the Supreme Court handed down its judgment in the case of Bilta (UK) Ltd (In Liquidation) and others v Tradition Financial Services Ltd  [2025] UKSC 18, when the court clarified that the persons who may be held liable for fraudulent trading are not limited to those exercising management or control over a company, but can include someone routinely trading with the company in the knowledge that the company was carrying on a fraudulent business.

This decision is notable because it provides clarity on the liability of outsiders who assist a company in its fraudulent trading and who may now be liable to contribute to the insolvent company, pursuant to section 213 Insolvency Act 1986. 

The decision of the Supreme Court in Bilta has widened the class of persons who would now have liability under Section 213 (2) Insolvency Act 1986, beyond directors and managers of the insolvent company, to include any third party who assists in or facilitates the fraudulent activity of the company

Bilta (UK) Ltd (In Liquidation) and others v Tradition Financial Services Ltd [2025] UKSC 18

The facts

The case arose from a complex missing trader intra-community fraud (‘MTIC fraud’), committed in 2009. MTIC frauds exploit the fact that imports from one EU country to another are VAT free, but VAT is added on to the sale price when the imported goods are then sold on within the EU country into which they have been imported.

The fraud involves traders incurring large VAT liabilities to HMRC (or other national revenue authorities) but failing to account for the VAT and instead paying the VAT receipts to third parties and then putting the company into insolvent liquidation, owing substantial monies in unpaid VAT.

There were 5 companies involved in this MTIC fraud, all amassed large VAT liabilities to HMRC and all went into liquidation. Bilta was one of those 5 companies. In November 2017 the liquidator of Bilta issued proceedings against Traditional Financial Services Ltd (‘Tradition’) in which they claimed that:

• Tradition had dishonestly assisted the directors of Bilta in the fraud.
• Tradition knowingly participated in the fraud and were consequently liable to make payments to Bilta’s insolvent estate, in order to contribute to its assets, for the benefit of Bilta’s creditors, under section 213 (2) Insolvency Act 1986.

The proceedings were partially settled between the parties, but two issues remained which were to be decided by the court:

1. The first issue was whether the ‘dishonest assistance’ claim was time barred under the provisions of the Limitation Act 1980. In fact, the court found it was, on the basis the claimant had failed to discharge the required burden of proof.
2. The second issue was does Section 213 (2) of the Insolvency Act 1986 cover persons who were not involved in the management or control of the fraudulent business?

The question before the court was purely one of statutory interpretation and so the court proceeded on the basis of assumed facts: the parties agreed that the Claimant’s pleaded case on the facts was to be taken by the court as the factual basis on which it was to make its determination, even though in the main High Court proceedings, those facts were disputed.

The arguments

Counsel for the appellant, Tradition, argued that Tradition fell outside the ambit of Section 213(2) of the 1986 Act; that the scope of the words “any persons who were knowingly parties to the carrying on of the business mentioned [in subsection (1)]” meant the phase was restricted to persons exercising management or control over the company in question.

Tradition had advanced this argument unsuccessfully before the lower courts and renewed it before the Supreme Court. It submitted that the issue was whether Tradition should be treated as a party to the carrying on of the fraudulent business, when the plan to defraud HMRC was hatched by Bilta’s directors, and it was not alleged that Tradition was a party to that conspiracy.

Tradition argued that the issue was confined to whether section 213 (2) of the 1986 Act was intended to apply only to persons exercising management or control over the company’s business, for example its directors, which counsel described as the ‘narrow interpretation’, or whether the provision extends to those who assisted or contributed to the breaches of duty by the company, or those controlling it; described as the ‘wide interpretation’.

It said that by reference to an analogous criminal law provision (section 993 of the Companies Act 2006 which creates a criminal offence of knowingly being a party to any fraudulent business of a company carried on with intent to defraud creditors of a company), the ‘narrow interpretation’ should apply to section 213 (2).

Tradition’s arguments focused on the legislative history of the precursor legislation to section 213 of the Insolvency Act 1986 and relied, in part, upon the authoritative opinion contained in an article written by David Foxton KC on ‘Accessory Liability and Section 213 Insolvency Act 1986’ in 2018 for the Journal of Business Law.

In response, Counsel for the liquidator of Bilta presented submissions distinguishing the words used to identify the target of the legislation in the surrounding sections of the Insolvency Act 1986, specifically sections 212, which identifies persons liable as being a person concerned or who has taken part in the formation, promotion or management of the company; section 214 which refers to a director of the company; as well as sections 133, 216 and 217.

The liquidator’s argument was that the wording used in section 213 (2) was notably wider than the specified targets in the surrounding legislation, indicating parliament’s intention that liability under it is not limited in the way the surrounding sections clearly are.

The outcome

The Supreme Court rejected Tradition’s arguments, saying that the legislative history was of only limited assistance but pointed to a parliamentary purpose of expanding the range of persons targeted by the fraudulent trading provision.

The court applied the well-established approach to statutory interpretation. In essence, the meaning of a legislative provision is derived from the words parliament used in the context of the statute as a whole and the historical background against which it was enacted, as this may shed light on its purpose.

The court started by looking at the words in subsection (1), as being the ‘gateway’ to the operation of subsection (2) and noted the person to incur the liability must be a party to the carrying on of the fraudulent business, not merely involved in a one-off fraudulent transaction.

In applying the standard approach, the court said the wording of s 213 (2) Insolvency Act 1986 indicates a person can only be liable if they were actively involved in carrying on the fraud, but there was nothing in the language of the sub section to restrict its scope to directors or managers. On the contrary, it could apply to someone routinely transacting with the company in the knowledge that the company was carrying on a fraudulent business.

The court went on to say that the natural meaning of the statutory words within sub section (2) is wide enough to cover not only insiders, but also persons dealing with the company, if they knowingly were parties to the fraudulent business activities in which the company was engaged. Such persons could include those who transacted with the company in the knowledge that by those transactions, the company was carrying on its business for a fraudulent purpose.

In reaching its decision, the court agreed with Neuberger J in In re Bank of Credit and Commerce International SA [2002] BCC 407, who considered the ambit of section 213 (2) Insolvency Act 1986 and said: “the concept of being parties to the carrying on by a company of a type of business, or of a business in a certain way, is not limited to the person who actually directs or manages the business concerned.”

The Supreme Court also endorsed the example given by Lewison LJ, who heard the Bilta case in the Court of Appeal, that a manufacturer of counterfeit clothes who supplied them to a retailer, knowing the retailer would pass them off as genuine, would be a party to the carrying on of the retailer’s fraudulent business because he “knows about the retailers business and is actively participating in it in the sense of furthering and facilitating it”.

In rejecting Tradition’s arguments, that historical context of precursors to section 213 Insolvency Act 1986 should be taken as determining what parliament intended; the court noted that other sections of the relevant part of the Insolvency Act 1986 (Part IV, Chapter X) use strikingly different language to identify their targets and did not suggest the natural meaning of s 213 (2) of the 1986 Act should be departed from.

The court said that in applying the ordinary principles of statutory interpretation, the courts must be wary of doing anything that would frustrate the ability of an ordinary citizen to ascertain what a provision means by reading it.

Summary

This decision highlights the approach the courts will take when applying the ordinary principles of statutory interpretation and clarifies the persons who would fall to be liable under s 213 (2) Insolvency Act 1986 are not limited to directors or managers of a company, but any person actively involved in fraudulent business transactions.

As a result, liquidators of insolvent companies which had engaged in fraudulent business, are able to pursue third parties for monetary contributions to the company’s assets. It is expected that this decision will result in an increase in such claims now the scope of persons considered liable has been clarified by the court.

About the author

Julie Hunter is a Partner in the commercial department at Stephensons. She is highly experienced in litigation and dispute resolution matters covering all aspects of commercial litigation, including invoice and asset finance, secured finance, commercial contracts disputes and general litigation.

See also

Does an administration order stop limitation periods from running?

Is a foreign judgment debt sufficient grounds for bringing a bankruptcy petition in England and Wales?

Court of Appeal clarifies interpretation of s423 of Insolvency Act 1986

Find out more

Insolvency Act 1986 (Legislation)

Bilta (UK) Ltd (in liquidation) and others (Respondents) v Tradition Financial Services Ltd (Appellant) (Supreme Court)

Limitation Act 1980 (Legislation)

Companies Act 2006 (Legislation)

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Publication date

8 July 2025

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.