Bilta (UK) Ltd v Nazir (No 2) [2015] UKSC 23

Facts

  • Bilta (UK) Ltd (“Bilta”) was involved in carbon credit trading.
  • Bilta’s directors orchestrated a Missing Trader Intra-Community (MTIC) fraud scheme to avoid Value Added Tax (VAT).
  • The fraud resulted in significant losses for HMRC and led to Bilta's insolvency.
  • The liquidators commenced legal proceedings against the directors and others, alleging fraudulent trading under section 213 of the Insolvency Act 1986.
  • The claim asserted that the business was run with the required fraudulent intent to defraud creditors.

Issues

  1. Whether directors and participants in a fraudulent scheme could be held liable under section 213 of the Insolvency Act 1986 even if the fraud harmed the company itself.
  2. Whether “intent to defraud creditors” under section 213 requires proof of actual dishonesty as well as dishonesty judged by reasonable and honest standards.
  3. Whether the scope of section 213 covers those involved in fraudulent trading where the fraudulent activity was central to the company’s operations, regardless of the company's net benefit or harm.

Decision

  • The Supreme Court reversed the decision of the Court of Appeal, holding that directors and others involved in the fraudulent scheme could be held personally liable under section 213.
  • The Court clarified that “running of the business” includes participation in a fraudulent scheme even where the company itself is harmed.
  • The determination of liability focused on the intent to defraud creditors, which was present in the directors’ actions.
  • The Court found that harm to the company does not prevent liability under section 213 if there is sufficient fraudulent intent toward creditors.
  • The decision significantly widened the scope of section 213 and confirmed personal liability for directors involved in such fraudulent activities.

Legal Principles

  • Section 213 of the Insolvency Act 1986 enables courts to impose liability on those running a company's business with fraudulent intent to cheat creditors.
  • "Intent to defraud creditors" requires both actual dishonesty and conduct that would be dishonest by the standards of reasonable and honest persons.
  • Fraudulent trading under section 213 is distinct from wrongful trading; the former requires a higher standard of proof of dishonesty.
  • The scope of section 213 extends to individuals whose conduct, while harming the company, displays a fraudulent intent towards creditors.

Conclusion

The Supreme Court's decision in Bilta (UK) Ltd v Nazir (No 2) [2015] UKSC 23 clarified the application of section 213 of the Insolvency Act 1986, expanding its reach to hold directors and others personally liable for fraudulent trading schemes that harm the company but are carried out with intent to defraud creditors. The ruling provides clarity on director duties, fraudulent intent, and the breadth of liability in insolvency contexts, establishing an important precedent for future cases concerning fraudulent trading.

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