Who can be liable for fraudulent trading?

  • The Supreme Court has ruled that third parties can be liable for fraudulent trading under section 213(2) of the Insolvency Act 1996.
  • To be liable, the third party does not have to be engaging in management activities within the company or controlling the company.
  • If you suspect an insolvent business you are dealing with is involved in fraudulent trading, get expert legal advice immediately.

In Bilta (UK) Ltd (In Liquidation) v Tradition Financial Services Ltd [2025] UKSC 18, the Supreme Court ruled that people not involved in the management or control of an insolvent company can be liable for fraudulent trading under section 213 of the Insolvency Act 1986 (IA 1986).

Facts of Bilta (UK) Ltd (In Liquidation) v Tradition Financial Services Ltd

Five companies (C) had fallen into liquidation because of VAT liabilities caused by missing trader intra-Community fraud. C brought a claim against the defendant company (T) alleging that it had dishonestly led directors to breach their fiduciary duties by carrying on fraudulent trading. The liquidators also brought claims against T, stating it was liable under section 213(2) of the IA 1996 to contribute to the companies’ assets because it had knowingly been a party to fraudulent trading.

Section 213 of the IA 1996 reads:

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

T argued that to be liable under section 213(2), a person or entity must be managing or controlling the insolvent company in question. The High Court and Court of Appeal rejected this.

What was the Supreme Court’s decision in Bilta (UK) Ltd (In Liquidation) v Tradition Financial Services Ltd?

This case rested on the interpretation of section 213(2), specifically the words “any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned.” 

There is a wealth of case law that states that when interpreting legislation, the Court must consider the words that Parliament has used and give them their natural meaning, having regard to the context of the statute as a whole and the historical context in which the statute was enacted. This is because the context of the Act as a whole often reveals the ‘mischief’ the legislation was designed to deal with.

In R (Quintavalle) v Secretary of State for Health [2003] UKHL 13; [2003] 2 AC 687, Lord Bingham of Cornhill provided an excellent summary of the Court’s role in statutory interpretation and the danger of strictly interpreting words literally:

“Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court’s task, within the permissible bounds of interpretation, is to give effect to Parliament’s purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.”

The Supreme Court upheld the High Court’s and Court of Appeal’s decisions, stating that there was nothing in the wording of section  213(2) that restricts the scope of the provision to directors and other “insiders” who were directing or managing the business of the company. The natural meaning of the statutory words – “any persons who were knowingly parties to the carrying on of the business” of the company for any fraudulent purpose – is wide enough to cover persons who were dealing with the company and were knowingly parties to the fraudulent business activities in which the organisation was engaged.

Additionally, the Supreme Court held that nothing in the history of the IA 1996 creation or the context of the Act itself gave any reason to move away from the natural meaning of the words in section 213(2).

What judgement this means for you

Given that this is a Supreme Court judgment and therefore binding on other Courts, company directors need to take it seriously. If you deal with a company involved in fraudulent trading, you will open yourself up to being liable under section 213 of the IA 1996. And because fraudulent trading is a criminal offence, you may find yourself being prosecuted.

If you have any concerns about dealing with an insolvent company that may be engaging in fraudulent trading, please don’t hesitate to contact me directly.

Tanveer Qureshi has a robust track record of successfully advising and representing companies and directors subject to regulatory investigations and prosecutions. If you require legal representation, please get in touch with Tanveer directly at tqureshi@libertaschambers.com or via his Chambers, Libertas Chambers on ​020 7036 02000.

Author bio

Tanveer Qureshi specialises in general crime, white-collar crime, and regulatory investigations and prosecutions. He has over 20 years’ experience and is passionate about ensuring his clients get results and achieve justice. When not pouring over case briefs, Tanveer gets up at 4.30am to get his gym workout done and is a committed motorsports fan.