Could Your Business Have to Contribute to a Contractor’s Liquidation?

How careful do you have to be about who you do business with and might you be found liable to contribute to a contractor’s liquidation?

Earlier this year, a Supreme Court decision in the case of Bilta (UK) Ltd v Tradition Financial Services Ltd [2025] UKSC 18 provided some clarification, as well as a timely reminder of the need to be diligent about who you do business with.

The facts

There were five claimant companies (claims brought by way of their liquidators). The companies had been involved in a VAT fraud in 2009, in that VAT payments received by them from third parties had not been paid to HMRC. As a result, the companies owed HMRC a substantial amount of money.

The respondent, Tradition, was a broker and had introduced counterparties to the claimants and negotiated trading terms.

The claims against the respondent were that they had had knowingly participated in the fraudulent trading.  At best, the nature of the trading was suspicious.   

Tradition denied wrongdoing and argued that section 213 of the Insolvency Act (see below) liability should be confined to those exercising managerial or controlling roles. It was Tradition’s case that they were not party to any plan to defraud HMRC.

The legal issues

There were two main issues to be decided:

• The correct interpretation of section 213 of the Insolvency Act 1986 and whether liability for fraudulent trading under this section is limited to individuals managing or controlling the company.

Section 213 of the UK’s Insolvency Act 1986 allows the court to hold individuals liable for contributing to a company’s assets if they were knowingly involved in carrying on the company’s business with the intent to defraud creditors. 

• The claimant companies had been dissolved but subsequently restored. The issue therefore was whether certain claims of dissolved and subsequently restored companies are time-barred (section 32 of the Limitation Act 1980). This relatively niche issue turns on whether the provision about whether someone, with reasonable diligence, could have discovered the fraud, concealment or mistake applies during the period of a company’s dissolution.

The outcome

The Supreme Court held that section 213 is not limited to those who are involved in the management or control of a company. The court held that giving a “natural” meaning to the words of the statute that “any persons who were knowingly parties to the carrying on of the business” of the company “for any fraudulent purpose” means it is wide enough to cover those who are dealing with the company if they are knowingly party to the fraudulent business activities. Therefore, Tradition could be liable under section 213.

In respect of the limitation point, the court found a restored company continues in existence during the period of its dissolution and the claimant companies had failed to demonstrate (on the facts of this case) that they couldn’t (with reasonable diligence) have discovered the fraud. In this case, the burden of proof (on the balance of probabilities) was on the claimants and therefore, their claims for dishonest assistance were statute-barred.

Comment

This decision doesn’t represent a big change of direction by the courts, but it is a timely reminder of the need for diligence. Contracting parties who are aware of or turn a blind eye to fraudulent activities of a company may find themselves having to contribute towards the contractor’s liquidation.

Red flags that might lead to liability might include:

• Failure to carry out proper checks as to who you’re doing business with and whether or not the activities involved might amount to financial crime.
• Failure to follow up on suspicions or knowledge, particularly if the business in hand is unlikely to be legitimate.

If you require assistance with due diligence or advice about activities to which you may be a party and a contractor’s liquidation, please get in touch.

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