Bilta v Tradition – fraudulent trading claims against professionals: a new avenue of recovery?

On 7 May 2025, the Supreme Court handed down judgment in Bilta (UK) Ltd v Tradition Financial Services Ltd [2025] UKSC 18; [2025] 2 WLR 1015. The case concerned a fraudulent trading claim brought under section 213 of the Insolvency Act 1986 (“s213”). The Court held on assumed facts that such a claim could be pursued against the defendant, an interdealer broker of financial and commodity products, even though Tradition had not exercised a controlling or managerial function within the claimant (a company in liquidation). This is an expansive reading of the scope of s213.

In this article, Jamie Smith KC and Charlotte Baker compare and contrast a s213 claim and a dishonest assistance claim and ask the question: does s213 represent a potent new avenue of recovery for distressed companies against deep-pocketed professionals?

Introducing S213

Under the heading, “Fraudulent trading”, s213 provides:

“(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.”

It may be seen that s213 is only available to distressed companies, in that the right to relief may only be claimed by a liquidator[1]. It is a precondition to the exercise of that right that any business of the company has been carried on:

1. with intent to defraud the creditors of that company;
2. with intent to defraud the creditors of any other person;
3. for any fraudulent purpose.

Plainly, very many situations will fall within one or more of (a), (b) and/or (c) above. The fraudulent activity may target the company (e.g., improperly extracting money from it), but it may target another company altogether (e.g., exploiting intellectual property owned by that other person or, as in Bilta, a VAT carousel fraud). Indeed, so long as any business of the company is associated with some form of systematic (as distinct from one-off) fraud and the company has subsequently become distressed, s213 is in theory available.

More about s213 – against whom it is available?

As above, s213(1) describes the conditions that must be met in order for a liquidator to seek relief. S213(2) prescribes the persons against whom relief may be obtained, namely:

“any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned [i.e., fraudulently]”.

The law is clear that the word “knowingly” means dishonestly. See, e.g., Bilta at paragraph [36]. This connotes the part-subjective/part-objective approach set out in Ivey v. Genting [2017] UKSC 67; [2018] AC 391 (SC)[2].

We then ask: what manner of dishonest people fall within s213(2)? The answer provided in Bilta is:

1. The relevant persons are not limited to those who exercise a controlling or managerial function within the companies, i.e., directors and other ‘insiders’.
2. Instead, it is anyone who knowingly participates in the fraudulent trading of the ‘claimant’[3] company, so long as the involvement is active and not passive (e.g., a failure to advise or take a step) and so long as it has sufficient substance to amount to participation in the fraudulent trading (and not, say, merely a one-off transaction). See Bilta at paragraphs [25] and [26].

S213 thus may extend to ‘outsiders’. On the assumed facts, Tradition was liable even though it had no direct involvement with Bilta. Rather, it brokered the transactions between Bilta and counterparties by which the VAT carousel fraud was perpetrated.

Dishonest assistance claims against professionals

Our readers will need no introduction to equitable claims against professionals for ‘dishonest assistance’. The defendant professional will be liable to a claim by C if:

1. they dishonestly assisted;
2. a breach by a third party of a trust duty or other fiduciary duty owed to C; and where,
3. the third party breach caused loss to C (but sophisticated common law principles of causation are not imported into the causal analysis).

Comparing and contrasting the width of s213 and dishonest assistance claims against professionals

We now turn to compare and contrast the width of s213 claims and of dishonest assistance claims against professionals.

As we can see from the above, so far as the qualifying characteristics of claimants are concerned, dishonest assistance claims are wider than s213 claims in that:

1. s213 claims are limited to distressed companies;
2. dishonest assistance claims may be brought by any legal person who has sustained loss arising from a breach of trust or fiduciary duty owed to that person by a third party.

Dishonest assistance claims are potentially wider in one further respect, namely:

1. such claims usually relate to one or few transactions; whereas,
2. a defendant may not be ordered to pay compensation under s213 unless their fraudulent involvement is sufficiently extensive to amount to participation in the fraudulent trading of the ‘claimant’ company’s business.

Both types of claim require proof of dishonesty, in the Ivey v. Genting sense, so there is no difference in that respect.

Following Bilta (and as the assumed facts of Bilta show), s213 claims may be much wider in scope than dishonest assistance claims in a key respect, namely:

1. Dishonest assistance claims tend to focus on the professionals associated with company ‘insiders’. This reflects the need for dishonest assistance by the professional of a breach of duty by the third party owed to the claimant.
2. Typical examples of dishonest assistance claims are thus: (i) a solicitor releases money from a client account upon the direction of the trustee, contrary to the terms of the trust deed (the claimants are the new trustees or the beneficiaries); (ii) an accountant advises that a director/shareholder may take unduly large dividends from a company (the claimant is that company).
3. S213 may catch the conduct of professionals who are advising or involved with ‘outsiders’.

We postulate the following examples showing the potential width of s213:

1. Tax advisers (such as accountants and solicitors) who advise Entity A, where that entity transacts with or is involved with Company C as part of a tax scheme that is held to amount to unlawful avoidance.
2. Transactional advisers (such as corporate lawyers, corporate financiers or patent attorneys) who advise upon or structure Entity B’s trading activity with Company C and where that activity is held to be part of C’s fraudulent business.
3. Agents (such as interdealer brokers or other financial intermediaries) who broker commercial relations involving Company C and other entities, where those relations are part of C’s fraudulent business.

Limitation issues

Section 32(1)(a) of the Limitation Act 1980 applies to claims for dishonest assistance. The claimant will have six years to bring the claim starting from the date the fraud is discovered or “could with reasonable diligence” have been discovered. For those who have followed the ups and downs of section 32 over recent years, they will know that it is far from a claimant panacea. The ‘reasonable diligence’ test is quite an onerous one for claimants e.g., ECU Group plc v. HSBC Bank plc [2021] EWHC 2875 (Comm).

S213 claims enjoy the benefit of a special limitation period, six years from the winding up order or when the company goes into voluntary liquidation – see section 9 of the Limitation Act 1980. Many years may pass between the conduct of the dishonest professional and the time when the company becomes distressed.

This is one key respect in which s213 claims are more beneficial to claimants than dishonest assistance claims.

The available remedy

The remedy for dishonest assistance is usually confined to the isolated consequences of the breach of trust or fiduciary duty. If, say, the director steals £1m from the company, that will likely be the measure of compensation (together with interest) even if, in a general sense, that £1m was a contributor to the general demise of the company. This is by way of recognition that the equitable claim targets the defendant’s assistance towards specific activity rather than rendering them responsible for the claimant’s business or financial health.

A claim under s213 may encompass a broader sweep of financial losses. In particular:

1. The liability to “make contributions to the company’s assets” under s213(2) has been held to involve an inquiry as to loss caused to the company’s creditors generally through an insufficiency of assets to meet their debts. See, e.g., Tradestar v. Goldfarb [2018] EWHC 3595 (Ch) at paragraph [21] per Fancourt J.
2. All that is required is a causal link between the fraudulent trading and that loss, such as to render the defendant liable to make such contributions as the court considers to be appropriate.
3. The loss will often be the whole of the deficiency to creditors ‘at the end of the day’, i.e., at the point at which the course of fraudulent trading has come to light.
4. It will include the costs of the liquidation process, as confirmed in the Stacks Living case (see footnote 2 above) at paragraph [108] per ICC Judge Greenwood.

Conclusions

We recognise that it remains a rare case in which dishonesty on the part of a professional person is established. If it is established, historically the claimants have sought equitable relief for ‘dishonest assistance’. Following Bilta, professional firms may now have something extra to fear in the form of s213 claims. Such claims may be made against professional persons who are only loosely connected to the claimant company, they enjoy an advantageous limitation period and may enable claimants to seek wider compensatory relief.

©  Jamie Smith KC and Charlotte Baker, 4 New Square Chambers

June 2025

Disclaimer: this article is not to be relied on as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.

[1] Or an administrator – see section 246ZA of the Insolvency Act 1986. Our comments on s213 apply equally to claims by administrators under section 246ZA.

[2] I.e., consider whether the honest person on the Clapham omnibus, having the knowledge that the defendant actually had, would have behaved in the way the defendant did – as recently confirmed in the s213 context in Stacks Living Ltd v. Shergill [2025] EWHC 9 (Ch); BCC 309.

[3] We put speech marks around this term because the claimant is actually the liquidator (or administrator, under s246ZA).