English Supreme Court confirms liability of 'outsiders' for fraudulent trading

Quick read

The Supreme Court confirmed the classes of people who can be found liable for fraudulent trading under s.213 of the Insolvency Act 1986. It also clarified the burden of proof and the applicability of statutory limitation provisions, particularly relating to companies restored after dissolution.

Background

The case involves Bilta (UK) Ltd and others (all in liquidation) who were involved in a missing trader intra-community fraud during the summer of 2009. The fraud centred around spot trading in carbon credits under the EU Emissions Trading Scheme (EUAs).

Tradition, a third party company not involved in the management of Bilta or the other companies, was alleged to have facilitated the trades in EUAs, despite knowing the pattern of trades was suspicious and potentially illegitimate and could include VAT fraud.

The trading activity led to substantial liabilities being owed to HMRC and the subsequent insolvencies of the companies.

Legal issues

The legal dispute raised two main issues:

whether s.213 confines liability to those managing the fraudulent business or includes third parties who knowingly assist
whether claims by dissolved companies restored later are time-barred under section 32(1) of the Limitation Act 1980.

Key takeaways

This helpful decision for insolvency office-holders confirms the wide range of potential defendants to a claim for fraudulent trading to include those outside the company who were knowingly parties to fraud.
Claims by dissolved companies later restored which are time-barred, remain so unless it is proven they could not have discovered the fraud with reasonable diligence during their dissolution period.