Jetivia S.A. and another v Bilta (UK) Limited (in liquidation) and others [2015] UKSC 23

Insolvency practitioners and creditors alike will welcome the decision handed down by the Supreme Court on 22 April 2015. It reduces the wiggle room given to delinquent directors of insolvent companies when claims are brought against them, and confirms the extra-territorial effect of claims against third parties under the fraudulent trading provisions in section 213 of the Insolvency Act 1986 (the “Act”).

Background & Facts

The liquidators of Bilta (UK) Limited (the “Company”) brought proceedings against two former directors of the Company, Jetivia S.A. (a Swiss company) and its chief executive. They alleged that all had been parties to a conspiracy to injure the Company pursuant to a fraudulent VAT carousel scheme involving EU carbon credits. The liquidators (in the Company’s name) claimed that the scheme involved a breach of fiduciary duties by the directors who had been dishonestly assisted by Jetivia and its chief executive, and sought damages in tort and a contribution under section 213. The appellants applied to have the claim struck out on the basis that (i) they had a defence of illegality (ex turpi causa) and (ii) section 213 could not be invoked outside of the UK.

Illegality

The appellants relied on the fact that the actions and knowledge of a company’s directors can generally be attributed to the company itself, so that actions which were alleged to constitute a breach of duty by the directors were essentially acts of the Company. Accordingly the Company should not be able to bring a claim against the directors which relied on its own (attributed) illegality. The Supreme Court held that when a company has been a victim of wrongdoing by its directors, there can be no attribution to the company of the wrongful act or knowledge of the directors as a defence to the company’s claim against the directors, even if those acts or knowledge would be attributed in other circumstances. The lack of attribution in this case meant the defence of illegality failed.

Section 213

Section 213 of the Act allows liquidators to bring claims against directors and third parties knowingly involved in the fraudulent trading of a company to make a contribution to the company’s assets. The Supreme Court held that it would seriously handicap the efficient winding up of UK companies if the jurisdiction of the court did not extend to persons resident overseas who had been involved in carrying on the company’s business. The approval of the approach in Re Paramount Airways [1993] Ch 223 (which involved transactions at an undervalue) means that officeholders can be comfortable that references to “any person” in the provisions of the Act governing fraudulent and wrongful trading, transactions at an undervalue and preferences mean “any person, in any jurisdiction”.

Comment

This case removes any potential legal loophole for directors to evade the full force of the law intended to allow insolvency practitioners to bring claims on behalf of companies where there is evidence of wrongdoing. It also guarantees that insolvent estates can, in appropriate cases, seek redress regardless of the location of those involved.