In the follow up to their article on recent guidance from the Cayman Islands' courts on fraudulent trading claims, Harneys partner James Eggleton and counsel Anya Allen unpack the UK Supreme Court's decision and its relevance for the Cayman Islands.
This is the second article in a two-part series on recent decisions concerning fraudulent trading claims under Section 147 of the Cayman Islands Companies Act and Section 213 of the UK Insolvency Act, being Conway & Ors v Air Arabia [2025] CIGC (FSD) 41 (20 May 2025) and Bilta & Ors v Tradition Finance Services [2025] UKSC 18 (7 May 2025).
Bilta & Ors v Tradition Finance Services
Bilta was one of several companies which were vehicles in a missing trader intra-community fraud involving spot trading in carbon credits under the EU Emissions Trading Scheme. Spot trading in EU allowances within EU Member States at that time attracted VAT. The rules were changed when the authorities realised that the EU Allowances were being used in relation to such fraud. In this case, the fraud involved five companies which were left with enormous VAT liabilities owing to HMRC.
The companies issued a claim against Tradition Financial Services alleging that it had dishonestly assisted their directors in the breach of their fiduciary duties to the claimant companies. The liquidators also brought a claim under Section 213 of the Insolvency Act alleging that Tradition had knowingly participated in the fraudulent trading of the businesses of the claimant companies. The parties reached a partial settlement, leaving two substantive issues for the Court to decide.
The UK Supreme Court addressed two key issues. Firstly, whether the persons who may be required to make contributions to a company's assets under Section 213 of the UK Insolvency Act are confined to those involved in the management or control of the business, or extend also to third party "outsiders". Those "outsiders" include, for example, those who have transacted with the company in the knowledge that by those transactions, the company was carrying on business for a fraudulent purpose.
Secondly, the court looked at the operation of Section 32(1) of the UK Limitation Act, which defers the commencement of limitation periods in fraud cases to the point at which the claimant has discovered or could with reasonable diligence have discovered, the fraud. It considered the effect of the legislation within the context of a related claim brought by the company in dishonest assistance, during the period in which the company had (prior to its restoration) ceased to exist.
Issue 1: Whether Tradition fell within the scope of Section 213
The UK Supreme Court considered the scope of the words in Section 213(2): "any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned."
Tradition argued that the words were restricted to persons exercising management or control over the company in question, such that it should not, and could not, be treated as a party to the carrying on of the fraudulent business.
Applying principles of statutory interpretation and by reference to previous authorities, the court noted that certain features of the statutory language contained in Section 213 limit the circumstances in which liability may be incurred under Section 213, as follows:
The person must be a party to the carrying on by the company of a fraudulent business and not merely involved in a one-off fraudulent transaction, unless that fraud is sufficient evidence on its own of the carrying on of a fraudulent business;
Being a party to the carrying on by the company of a fraudulent business does not extend to a mere failure to advise; and
The person liable must have had an active involvement in the carrying on of the fraudulent business by the company.
However, the Supreme Court held that subject to those limitations, there is nothing in the language of Section 213(2) which restricts the scope of the provision to directors and "insid...