Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd

This Supreme Court case grew out of a large VAT fraud involving carbon credit trading in 2009. Several companies were alleged to have been used as vehicles in a missing trader intra-community fraud. In simple terms, the fraud model relied on buying goods VAT-free across borders within the EU, selling them on with VAT added, collecting that VAT, and then failing to pay it over before the company ended up insolvent.

The court said this kind of fraud often uses fast, repeated, back-to-back trades through linked companies. That can make the pattern harder to spot and harder to investigate.

The claimant companies later went into liquidation, and HMRC was their principal creditor. The companies and their liquidators sued Tradition Financial Services Ltd, a brokerage business involved in some of the relevant deal chains.

Two kinds of claim were brought:

The first dispute was about the reach of section 213. Tradition argued for a narrow reading. On that approach, only people involved in management or control of the company’s business should be liable to contribute to the company’s assets for fraudulent trading.

The claimants argued for a wider reading. They said the section could include outsiders who knowingly helped the fraudulent business continue.

The assumed facts mattered. The court proceeded on the basis that Tradition had brokered some deals in the relevant chains, introduced Nathanael and Inline to SVS Securities plc, liaised on prices and quantities, and was paid brokerage by volume traded.

The assumed facts also included more serious allegations. These included that Tradition introduced Inline and Nathanael to SVS knowing they were unlikely to be legitimate trading concerns and knowing their purpose was to amass VAT.

The court also recorded assumed allegations that Tradition:

The Supreme Court dismissed all appeals.

On section 213, it held that the wording is not restricted to directors or other insiders. The natural meaning of the provision is broad enough to include persons dealing with the company if they knowingly were parties to the fraudulent business activities in which the company was engaged.

The court also explained the limits. Liability requires knowing participation in the carrying on of a fraudulent business. It is not aimed at a mere failure to advise. It also requires active involvement rather than passive association.

The judgment says a person must be a party to the carrying on by the company of a fraudulent business, not merely involved in a one-off fraudulent transaction, unless that transaction itself is enough evidence of carrying on a fraudulent business.

For business readers, that means the decision is serious but not unlimited. It does not say every supplier, broker or customer in a tainted chain is automatically liable.

The court focused on points such as:

The limitation issue is more technical, but it still carries a practical lesson. Nathanael and Inline brought dishonest assistance claims, which had a six-year primary limitation period.

To avoid being out of time, they needed section 32 of the Limitation Act 1980 to postpone the running of time. That required them to show they did not discover, and could not with reasonable diligence have discovered, the fraud before the relevant cut-off date.

Their argument was that, because they had been dissolved, there was effectively nobody in place who could have discovered the fraud during that period.

The Supreme Court rejected the idea that restoration to the register automatically solved that problem. Section 1032 of the Companies Act 2006 deems the company to have continued in existence, but the court said that does not automatically answer the separate factual question of what officers the company should be assumed to have had for the purpose of the reasonable diligence test.

The result was that the restored companies still had to prove the factual basis for postponing time. They failed to do so.

For businesses, the broader point is that limitation arguments often depend on evidence, not just legal labels. If a claim later turns on who knew what, when they knew it, and what could reasonably have been discovered, records and chronology matter.

This decision is especially relevant if your business sits in the middle of transactions rather than at the end of them. Brokers, introducers, agents, traders and other facilitators often assume the main legal risk sits with the customer or the customer’s directors. This case is a warning against that assumption.

The court’s reasoning is useful because it focuses on ordinary commercial behaviour. If your business repeatedly helps deals happen, earns fees from volume, introduces counterparties, or smooths the path for rapid back-to-back trading, your role may later be examined in detail if the trading turns out to be fraudulent.

The question will not just be whether you controlled the company. It may be whether you knowingly helped the company carry on a fraudulent business.

That does not mean you must investigate every customer like an enforcement body. But it does mean obvious warning signs should not be ignored.

The assumed facts in this case included matters such as:

Most small and medium businesses will never deal in carbon credits, but many will recognise the wider risk pattern. A business may act as an introducer, marketplace operator, broker, distributor, sourcing agent or payment-linked intermediary. In each of those roles, there can be pressure to keep transactions moving, especially where revenue depends on volume or speed.

This case shows why internal controls should be designed for real trading behaviour, not just for policy documents. A short onboarding checklist that is actually used is more valuable than a long compliance manual nobody reads.

If your team spots unusual urgency, repeated back-to-back trades, a customer with little obvious commercial footprint, or reluctance to explain ownership or purpose, there should be a clear route to escalate the issue and pause activity if needed.

It is also worth checking whether your commercial incentives create blind spots. If staff are rewarded mainly for deal flow, they may be less likely to challenge suspicious patterns. That does not prove wrongdoing, but it can make later allegations harder to defend.

Practical controls can include:

For most SMEs, the practical value of this case is in tightening controls around counterparties and unusual transactions. You do not need to be in financial services to use the lesson. Any business that repeatedly supplies, introduces, brokers or facilitates transactions can adapt the same checks.

The aim is not to investigate every customer like a regulator. It is to avoid being the business that kept helping after the warning signs were obvious. A short, workable process is better than a policy that nobody follows.

If concerns arise, the key is to show that someone looked at them properly, asked sensible questions and made a reasoned decision.