Case law update
IPA Insolvency Practitioner newsletter, June 2025
An insolvency case law update prepared by Neil Stewart, Associate Director at Manolete Partners PLC.
Neil is a Regional Associate Director based in the South of England. Before joining Manolete in January 2019, Neil spent just over 20 years in legal practice, specialising in commercial dispute resolution and contentious insolvency. He was a partner in what is now known as Broadfield where he used his higher rights of audience and acted as an advocate in both interim hearings and at trial. He is an accredited mediator, a former R3 council member and current regional chairman of R3 Southern & Thames Valley.
Alice in Litigationland – a legal reimagining
Mr Justice Templeman’s famous observation in Re Gerald Cooper Chemicals Limited [1978] Ch 262 that “a man who warms himself with the fire of fraud cannot complain if he is singed”, was echoed by Lords Hodge and Briggs in the Supreme Court’s recent decision in Bilta (UK) Limited & others v Tradition Financial Services Limited [2025] UKSC 18. That sentiment captures the essence of the court’s ruling.
1. Statutory interpretation: who can be liable for fraudulent trading?
At the heart of Bilta was a deceptively simple but important question: can someone who does not manage or control a company still be liable for fraudulent trading under section 213 of the Insolvency Act 1986?
The Supreme Court’s answer is “Yes”. Here’s why:
- Plain wording: section 213 applies to “any persons who were knowingly parties to the carrying on of the business” with no mention of requiring management or control. The natural meaning of the words supports broad liability.
- Statutory context: surrounding sections expressly refer to a person who “is or has been a director”, a person “having been concerned in the promotion, formation or management” and the like. The absence of such language in s.213 indicates the legislators’ intention not to limit its application in that way.
- Legislative history: while not essential for interpretation given the clarity of the wording, the history points to a parliamentary intention of widening the net for fraudulent trading claims, not narrowing it.
2. Fraud, dissolution, restoration and the limitation clock
The second issue, though ultimately academic in Bilta due to the success of the main claim, concerned limitation – were the other claims out of time?
The relevant claims have a primary limitation period of six years and the fraudulent actions on which they were based took place in May to June 2009, eight years before proceedings were issued on 8 November 2017.
However, the limitation period may be postponed under section 32 of the Limitation Act 1980 in cases of fraud, deliberate concealment or mistake. In those circumstances, time starts to run when the claimant discovers the fraud, concealment or mistake or could with reasonable diligence have discovered it (emphasis added).
But what if the company was dissolved?
When a company is dissolved it ceases to exist. But under section 1032 of the Companies Act 2006, if it is restored to the register, it is deemed to have continued in existence as if it had never been dissolved.
It is for the claimant to prove that it could not, with reasonable diligence, have discovered the fraud, concealment or mistake and in Bilta the claimants argued that during the company’s dissolution there were no directors or liquidators in place who could have discovered the fraud. Yes, but that was in the real world. The effect of section 1032 is that you have to pretend there were directors in place.
In anticipation of that potential difficulty, the claimants had argued in the alternative before the first instance judge and Court of Appeal that the pre-dissolution directors who, their lordships subsequently acknowledged, had been “up to their eyebrows” in the fraud, would have continued to be its directors in the counterfactual world. If so, there was no dispute that the fraudulent directors’ knowledge could not be imputed to the company.
That didn’t work, either. In the counterfactual world, the company had to be imagined as having a board comprised of regular, competent, upstanding people. The question is whether such directors could, with reasonable diligence, have discovered the fraud.
The claimants failed to produce evidence that such imaginary directors could not have discovered the fraud and the argument therefore failed.
Discretionary extension? Rarely granted
If, as in Bilta, section 32 of the LA 1980 is not engaged, the court nevertheless has the power under section 1032(3) of the CA 2006 to extend the limitation period where appropriate. The court considered that the following had to be taken into account:
- the company’s dissolution must have been the real cause of being unable to pursue the claim;
- the company should not be put in a better position than if it had not been dissolved; and
- what would have happened if the company had remained in existence is a question of fact (and therefore requires supporting evidence).
Not surprisingly, given those constraints, the discretion is rarely exercised and no extension was granted in Bilta.
A word on legal fictions
It is tempting to criticise legal systems for indulging in fictions, especially when real-world facts seem sidelined. But legal fictions, like corporations, countries and currencies, are the bedrock of modern society. They are constructs we rely on daily, even if they stretch logic from time to time.
Nevertheless, cases like Bilta demonstrate how litigation, which is rarely predictable, becomes even more uncertain when layered with fictions. When limitation is in play, the complexity multiplies. That’s why choosing the right legal team combined with robust litigation finance and full protection from adverse costs is more crucial than ever.
Content courtesy of IPA principal sponsor Manolete Partners PLC.
Manolete Partners PLC is an investment business focused on dispute finance. It is not a law firm and does not provide legal advice.
Please note that guest articles do not necessarily represent the views of the IPA.