“Warming Oneself by the Fire of Fraud”: Bilta (UK) Ltd v Tradition Financial Services Ltd and the Extended Reach of Section 213 Insolvency Act 1986

1. Introduction

Bilta (UK) Ltd & Ors v Tradition Financial Services Ltd ([2025] UKSC 18) is the Supreme Court’s latest and clearest pronouncement on two distinct but inter-locking issues:

• The scope of section 213 Insolvency Act 1986 (“IA 1986”) – i.e. whether civil liability for fraudulent trading is limited to those who direct or control the company, or extends to outsiders who knowingly participate.
• The operation of section 32 Limitation Act 1980 during periods when a claimant-company has been dissolved but is later restored under section 1032 Companies Act 2006 (“CA 2006”).

The backdrop was an audacious Missing Trader Intra-Community (“MTIC”) carousel fraud in the summer of 2009, exploiting spot trading in EU Emissions Allowances (“EUAs”). Five shell companies (Bilta, Weston, Nathanael, Vehement and Inline) were left with colossal VAT liabilities; HMRC is their principal creditor. Tradition Financial Services Ltd (“Tradition”), a brokerage house, was alleged to have facilitated the fraud by arranging the back-to-back trades.

2. Summary of the Judgment

Delivering a joint judgment, Lords Hodge and Briggs (with Lords Hamblen, Burrows and Richards concurring) held:

1. Section 213 IA 1986 applies to any person—inside or outside the company—who knowingly participates in the company’s fraudulent business. Managerial or controlling status is not a pre-condition.
2. The dishonest-assistance claims of Nathanael and Inline are time-barred. Upon restoration to the register a company is deemed to have continued in existence, but not to have lacked competent officers. The companies failed to discharge the burden of proving that, with reasonable diligence, they could not have discovered the fraud before the six-year cut-off.
3. Accordingly, Tradition remains exposed to section 213 liability; Nathanael’s and Inline’s dishonest-assistance claims fail on limitation grounds; and the parties’ partial settlement stands.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

• In re Maidstone Buildings Provisions Ltd [1971] – clarified that passive failure to advise is insufficient; active involvement is required.
• In re Gerald Cooper Chemicals Ltd [1978] – Templeman J’s celebrated dictum (“a man who warms himself with the fire of fraud cannot complain if he is singed”) first intimated outsider liability.
• In re Bank of Credit and Commerce International SA (“BCCI”) [2002] – Neuberger J expressly rejected any managerial-control restriction.
• Bank of India v Morris [2005] – Court of Appeal proceeded (on concession) on the footing that counterparties can be liable; Supreme Court considered that concession persuasive though not binding.
• Bilta v Nazir (No 2) [2015] UKSC 23 – confirmed the extra-territorial reach of section 213 and described its targets as anyone “party to the fraud”.
• Criminal cases (R v Grantham 1984; Miles 1992; Kellard 1995) – discussed but distinguished; none dealt with outsider defendants.
• Regent Leisuretime 2003 and County Leasing 2015 – illuminated how section 1032(3) CA 2006 interacts with limitation directions.
• OT Computers 2021 – confirmed the objective nature of the “reasonable diligence” test under section 32 Limitation Act.

Collectively, these authorities formed a one-way trajectory towards broader accountability for fraudulent trading. The Court placed particular weight on:

3.2 Legal Reasoning

3.2.1 Statutory Interpretation of Section 213 IA 1986

1. Textual Analysis: The phrase “any persons who were knowingly parties” contains no internal restriction to directors, managers or “insiders”.
2. Contextual Contrast: Nearby provisions (ss. 212, 214, 216) expressly target “directors”, “shadow directors” or those “concerned in management”. Parliament’s choice of broader language in s. 213 is therefore deliberate.
3. Historical Evolution: The Cohen Committee (1945) proposed widening the fraudulent-trading remedy; the 1948 Act enacted that recommendation; successive consolidations preserved the expansive wording.
4. Purpose: Section 213 is compensatory and deterrent. Limiting liability to insiders would create an obvious loophole whereby dishonest facilitators could profit with impunity.
5. Criminal Parity: The identical wording in s. 993 CA 2006 (criminal offence) does not mandate a narrow civil reading; dishonest outsiders face criminal exposure in any event (e.g. aiding and abetting fraud, Cartwright 2020).

3.2.2 Limitation Issue: Sections 32 & 1032

The Court distilled five principles (citing Fowler 2020) governing statutory deeming provisions. Applying them it held:

• Section 1032(1) deems the company to have continued in existence, nothing more.
• Whether the company should be treated as having officers during dissolution is a factual (counterfactual) matter; section 1032 is silent.
• The burden lay on Nathanael and Inline to prove they could not, with reasonable diligence, have discovered the fraud – a burden they failed to discharge.
• A blanket assumption that dissolved companies have no competent officers would hand them an automatic limitation windfall, undermining the purpose of section 32.

3.3 Impact of the Judgment

The decision is transformational in fraud-based insolvency litigation for three reasons:

1. Liability Net Widens: Brokers, lenders, suppliers and other counterparties now stand squarely within section 213’s firing line if they “warm themselves by the fire of fraud”. Expect heightened due-diligence and KYC protocols.
2. Liquidators’ Toolkit Strengthened: Insolvency practitioners gain a potent statutory claim against dishonest facilitators, often solvent and insured, thereby increasing recoveries for creditors (particularly HMRC).
3. Limitation Clarity for Restored Companies: Section 1032(1) does not hand restored companies a free postponement. Claimants must produce positive evidence that reasonable diligence could not have unveiled the fraud, even during dissolution.

4. Complex Concepts Simplified

• MTIC Fraud: A VAT carousel scheme exploiting cross-border zero-rating; goods (or carbon credits) circulate quickly, VAT is collected but never remitted.
• Section 213 IA 1986 – “Fraudulent Trading”: A civil remedy available in a winding-up, allowing the court to order anyone who knowingly participated in the company’s fraudulent business to contribute to its assets.
• “Knowing Party” / “Dishonesty”: Requires actual knowledge or wilful blindness (i.e. turning a blind eye); negligence is insufficient.
• Deeming Provision (s. 1032 CA 2006): Treats a dissolved company as if it had always existed once restored, but does not automatically populate it with directors or knowledge.
• “Reasonable Diligence” Test (s. 32 LA 1980): Objective standard asking what could have been discovered by a reasonably diligent person in the claimant’s shoes, on the facts of the particular fraud.

5. Conclusion

Bilta v Tradition cements a critical extension of section 213 IA 1986: dishonest facilitators outside the company’s management are civilly accountable for fraudulent trading. The Supreme Court’s textual, contextual and purposive analysis leaves little room for future equivocation. Financial intermediaries can expect rigorous scrutiny from liquidators armed with this precedent.

On limitation, the Court balanced fairness to defendants with access to justice for restored companies: a dissolved company must still prove that reasonable enquiries could not have uncovered the fraud. Restoration is not a limitation shield by default.

Overall, the ruling enhances creditor protection, aligns civil and criminal liability, and serves Parliament’s enduring objective: ensuring that those who knowingly warm themselves by the fire of fraud are duly singed—if not scorched—by the law.