Fraudulent trading occurs when a business that is insolvent continues to trade with the intent of defrauding creditors (or for any other fraudulent purpose). It is both a civil and criminal offence.

Fraudulent Trading is defined more specifically in Section 213 of the Insolvency Act 1986 (“the IA”):

• If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect. 

• The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper.

A company is insolvent when it cannot pay its debts as they fall due. In such circumstances, those companies should stop trading and liaise with an insolvency practitioner to effectively wind up the company, so that no further harm will come to the creditors.

However, through sheer desperation, some directors and staff continue to operate the business, in the hope that they can trade their way out of the debts. In these circumstances, there is a tendency to encourage staff to lie, such as telling creditors that they were in fact paid, but there are issues with the company’s banking facilities. This is the give the impression that there is nothing to worry about, and that the company is solvent. This, however, rarely (if ever) works. The company is encouraged to take bigger risks for bigger rewards, but alas, they usually fail.

The first port of call for any liquidator dealing with a liquidated company’s estate, is to investigate the directors’ (or more broadly, those involved with the management or control of the company) conduct, to determine if they were trading fraudulently. However, the Supreme Court has recently confirmed that third-parties, or “outsiders” of an insolvent company, who knowingly assist, facilitate, or participated in an insolvent company’s fraud will fall into the scope of section 213(2) of the IA.

Bilta (UK) Ltd (In Liquidation) v Tradition Financial Services Ltd [2025] UKSC 18 (“Bilta”) dealt – in part – with the interpretation and applicability of sub-section 2 of section 213 of the IA. It confirmed that section 213(2) does not only apply to the directors of the insolvent company (or individuals concerned with the management / control of the insolvent company).

This type of behaviour tends to be prevalent in large family businesses, and industries such as construction and property development.

Next Steps

If you are an insolvency practitioner or a creditor seeking advice against a company you believe is (or was) trading fraudulently – and need advice on how to secure your interest in the company’s estate – contact Griffin Law.

The judgment to Bilta can be found here.

Griffin Law is a dispute resolution firm comprising innovative, proactive, tenacious and commercially-minded lawyers. We pride ourselves on our close client relationships, which are uniquely enhanced by our transparent fee guarantee and a commitment to share the risks of litigation.  For more details of our services please email justice@griffin.law or call 01732 52 59 23.