On 7 May 2025, the Supreme Court delivered a landmark judgment clarifying the scope of liability for fraudulent trading under section 213 of the Insolvency Act 1986 (“IA 1986“). The Court held that liability under this provision is not confined solely to those who were responsible for the management and control of the company. Rather, it may also extend to any persons who were knowingly involved in the company’s fraudulent business activities.

In addition, the Court considered the interpretation and application of section 32 of the Limitation Act 1980 (“LA 1980“) in cases involving companies that have been dissolved and later restored to the register. This aspect of the judgment provides important guidance on the limitation periods applicable in such circumstances. Below, we examine the background to the case and explore the Supreme Court’s reasoning in greater detail.

Background

This case arises from a missing trader intra-community fraud (“MTIC fraud”) committed in 2009 involving the spot trading of EU carbon credits under the EU Emission Trading Scheme, also known as EU Allowances (“EUAs”). Five companies, Nathanael Eurl Ltd (“Nathanael”), Inline Trading Ltd (“Inline”), Bilta (UK) Ltd, Weston Trading UK Ltd and Vehement Solutions Ltd, were used as vehicles for the fraud and left with large unpaid liabilities to HMRC. All five companies were subsequently liquidated with HMRC as the principal creditor. In 2017, the companies and their respective liquidators filed a claim against Tradition Financial Services Ltd (“Tradition”). The claims included: (i) claims by the companies alleging that Tradition had dishonestly assisted their directors in breaching fiduciary duties owed to the companies; and (ii) claims by the liquidators under section 213 of IA 1986, asserting that Tradition had knowingly taken part in the fraudulent trading activities of the companies’ businesses.

Questions before the Supreme Court

The appeal to the Supreme Court focused on two primary questions:

The interpretation of section 213 of IA 1986 and whether the persons who may be required to make contributions to a company’s assets because they were knowingly parties to the company’s fraudulent trading are confined to those involved in the management or control of the fraudulent business; and
How the test in section 32(1) of LA 1980, which determines whether a claimant could have discovered fraud, concealment, or mistake with reasonable diligence, operates during the period when a company is dissolved and how it interacts with the deeming provisions on restoration under section 1032(1) of the Companies Act 2006 (“CA 2006”).

Fraudulent Trading

The liquidators alleged that Tradition was liable under section 213 of IA 1986 for participating in fraudulent trading. Section 213(2) of IA 1986 imposes liability on “any persons who were knowingly parties to the carrying on of the business” with intent to defraud creditors or for any fraudulent purpose. Tradition argued for a narrow interpretation, contending that the provision applied only to those involved in the management or control of the company – namely, the directors or insiders. This argument was rejected by the High Court and subsequently dismissed by the Court of Appeal.

The Supreme Court unanimously upheld the decision of the lower courts and dismissed Tradition’s appeal. Delivering the leading judgment, Lord Hodge and Lord Briggs held that the language of section 213(2) of IA 1986 does not restrict liability to insiders who manage or direct the company’s affairs. Rather, the natural and ordinary meaning of the phrase “any persons who were knowingly parties to the carrying on of the business” encompasses a broader category, including third parties who knowingly participated in the fraudulent conduct. This could include, for example, individuals or entities that transacted with the company in the knowledge that their transactions facilitated the carrying on of the business for a fraudulent purpose. The Court found no ambiguity in the statutory wording and confirmed that, in the absence of contrary indicators, it must be given its plain and natural meaning.

The Court further reinforced its interpretation by contrasting section 213(2) of IA 1986 with other provisions in the same statutory context. Specifically, sections s212 (a person who “is or has been concerned, or has taken part, in the promotion, formation or management of the company”) and s214 (“a person who is or has been a director of the company”). Both section 212 and section 214 clearly specify the categories of individuals to whom the provisions apply. Section 212 pertains to individuals involved in the promotion, formation, or management of the insolvent company, whereas section 214 is aimed at directors and shadow directors. The Court thereby held that the use of such precise and restrictive language in those sections, compared to the broader language in section 213(2), reflects a deliberate legislative choice. Accordingly, Parliament intended section 213(2) to have a wider scope, encompassing those who transacted with the company in the knowledge that, by those transactions, the company was carrying on its business for a fraudulent purpose.

Limitation

The claims against Tradition for dishonest assistance were dismissed for being time-barred, having been issued in November 2017, more than six years after the relevant acts occurred between May and July 2009 (inclusive). Nathanael and Inline, which had been dissolved and struck off the register in February 2011 and December 2010, respectively, and later restored to the register in liquidation in March 2012 and June 2015, respectively, were granted permission to appeal this finding on limitation and, in doing so, sought to rely on section 32 of LA 1980.

Dishonest assistance claims are subject to a six-year limitation period, which would have required the claimants to have issued claims in 2015. Section 32 of LA 1980 extends the start of the limitation period for claims involving fraud, concealment, or mistake until such time that the claimant could with reasonable diligence have discovered the fraud.

To successfully rely on section 32 of LA 1980, the claimants needed to show that the fraud could not have been discovered with reasonable diligence until the six-year period prior to the claims having been issued – i.e. before 8 November 2011.

Given that Nathanael and Inline had been dissolved between February 2011 to March 2012 and December 2010 to June 2015 respectively, during which time there were no directors, liquidators, or other officers, it was argued that they could not with reasonable diligence have discovered the fraud until they were restored to the register, in March 2012 and June 2015 respectively.

The two companies contended that section 1032 of CA 2006 should be interpreted to mean that they had only a ‘bare’ existence during the dissolution period, with no officers in place who could have reasonably discovered the fraud.

The Supreme Court dismissed the appeal, concluding that the deeming provision of section 1032 of CA 2006 did not support the claimants’ interpretation.

The Court held that, for the purposes of section 1032(1) of CA 2006, a restored company is to be treated as having continued in existence during the period of its dissolution—but nothing more (“no more and no less”). This statutory interpretation does not extend to assumptions about whether the company had competent officers capable of discovering fraud during that period. The presence or absence of such officers must be established by evidence, not inferred from the deeming provision.

To accept that every restored company lacked competent officers during dissolution—and was therefore incapable of discovering fraud—would undermine the purpose of section 32 of LA 1980. It would allow any restored company to invoke the postponement of time as of right, contrary to Parliament’s intent to reserve that relief for deserving claimants who could not reasonably have discovered the fraud. In this case, the appellants, Nathanael and Inline, failed to establish the factual basis necessary to invoke section 32 of LA 1980 (as they adduced no evidence to show that the fraud could not have been discovered with reasonable diligence before 8 November 2011) and the dishonest assistance claims were therefore held to be time-barred.

How we can help

The Supreme Court’s judgment provides important clarification on the scope of section 213(2) of IA 1986, offering valuable guidance for insolvency and legal practitioners. It will be particularly welcomed by Insolvency Practitioners, as it broadens the scope of potential liability for parties involved in fraudulent trading, thereby enhancing their ability to pursue recovery actions against a wider range of individuals and entities.

This development represents a meaningful step forward in strengthening creditor protection and promoting accountability in corporate governance. Similarly, the confirmed reach of section 213 of IA 1986 may lead to an increase in litigation, as liquidators explore new avenues for asset recovery from third parties previously considered beyond the scope of the provision.

The full impact of this decision will become clearer over time and warrants close monitoring to evaluate its practical implications on the conduct of insolvency proceedings and the outcomes for creditors.

Our Restructuring and Insolvency team has considerable experience in advising businesses, directors and individuals facing financial distress. Should you require any assistance, please contact any one of our partners in the Restructuring & Insolvency team. We are experts in this field and are here to help.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog. Please also see a copy of our terms of use here in respect of our website which apply also to all of our blogs.