Tag Archives: Insolvency

Supreme Court Makes Major Decision on Director Responsibility

The Supreme Court has handed down a potentially landmark decision in the case of Jetivia SA and another v Bilta (UK) Limited (in liquidation) and others [2015]. The ruling could have major implications in future cases where the directors of companies in liquidation face charges of fraud.

The defence mounted in this case, which the court unanimously rejected, would have seen two directors of an insolvent company rely on their own wrongdoing to escape responsibility and avoid paying damages. In order to do so, they cited the precedent set by a previous, very unpopular decision from the case of Stone & Rolls Limited v Moore Stephens.

In the case recently ruled upon by the Supreme Court, the two directors of defunct company Bilta were being sued for damages on behalf of that company by its liquidators. Acting in conjunction with others, whose responsibility is also established by the ruling, they are accused of neglecting their duties to the company as directors and deliberately engaging in fraudulent transactions through Bilta for personal gain, most of which involved the European Emissions Trading Scheme Allowances. Upon Bilta being forced to close down in 2009, the liquidators attempted to claim damages on Bilta’s behalf from the two former directors. Any compensation payments gained through the case would be used to help pay back those who were owed money by the company when it was forced to go into liquidation.

The two defendants and their accomplices attempted to mount an illegality defence. They claimed that because they had used the company to carry out their fraudulent transactions, Bilta was unable to make any claim against them. Because of their actions, they claimed, it was a criminal company and a tax fraud vehicle, and therefore had no right to damages. Had this defence been accepted, it would have meant that the very fact they were guilty of fraud meant that they could not be sued for their offences.

However, the Supreme Court rejected this defence unanimously, and this could prove an important decision for similar cases in the future. Where the unpopular ruling in the Stone & Rolls Limited v Moore Stephens case opened up the possibility of mounting such an illegality defence in similar cases, the more recent ruling may have closed this potential loophole.

The defence also claimed that section 213 of the Insolvency Act, under which the action against them was brought, did not apply extraterritorially and so was not valid for use in this case. The Supreme Court also ruled against this claim, and therefore established that Section 213 of this act can be used extraterritorially in future cases.