Liquidators and creditors of insolvent companies will be breathing a collective sigh of relief at the recent Supreme Court judgment in Jetivia v Bilta, where it held that the illegality defence was not available where a company, through its liquidators, was making claims against the directors for breaches of their duties to the company. In some ways the result was not that surprising, but should it have gone the other way, it would have deprived liquidators of a well-used weapon in their armoury for bringing claims against directors who have defrauded a company on its way to insolvency.
The case involved a VAT carousel or missing trader fraud. The liquidators brought a very commonly used claim against the directors for their breaches of duty and against the other participants in the fraudulent scheme for dishonestly assisting in those breaches. The co-conspirators made applications for summary judgment on the basis that the company could not rely on its illegal acts as a party to the conspiracy to bring these claims.
This was unanimously rejected by the Supreme Court. The case actually turned on whether, for these purposes, the directors’ acts as the directing mind and will of the company, could be attributed to it. The Supreme Court said no, even though the same acts could be attributed to the company in different circumstances, mainly where claims were being made against the company by third parties, or the company was making claims against third parties not involved in such a conspiracy.