Illegality, attribution of knowledge, and Stone & Rolls: Jetivia SA v Bilta (UK) Limited

On 22 April 2015, the Supreme Court handed down its decision in Jetivia SA v Bilta (UK) Limited¹, unanimously holding that where a company has been the victim of wrong-doing by its directors, that wrong-doing should not be attributed to the company so as to afford the directors an illegality defence.

Key points

• Administrators are not required to look behind a director's motives for appointment of administrators, but they must consider whether the statutory purpose can be achieved  
• Rescuing a company as a going concern does not necessarily require some positive act or improvement  

Facts

In the recent case of Wilson (as liquidator of 375 Live Ltd) v SMC Properties Limited, the English High Court reviewed the policy behind section 127 Insolvency Act 1986 (“the Act”) and the underlying principles that apply to validation order applications.

The Supreme Court has held that, where a company had been the victim of wrong-doing by its directors, the directors’ wrong-doing could not be attributed to the company to prevent it (or its liquidators) from bringing claims against the directors. 

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 Supreme Court has unanimously upheld a Court of Appeal decision refusing to strike out a claim by a “one-man” company in liquidation, which had been the vehicle for a VAT fraud, against its former directors and overseas suppliers alleged to have been involved in the fraud: Jetivia SA v Bilta (UK) Limited [2015] UKSC 23 (see our post on the Court of Appeal decision 

Months of anticipation culminated in a successful result for the Liquidators of Bilta (UK) Limited (in liquidation) on 22 April 2015 in a pivotal fraud case, whereby the Supreme Court unanimously dismissed an appeal involving the ‘illegality defence’, in the case of Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23.

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 i

All insolvency officeholders will be concerned about the increased uncertainty created by the recent case Re Calibre Solicitors (In Administration) concerning challenges to their remuneration and expenses.

In Re Mark Irwin Forstater [2015] BPIR, the petitioning creditor presented a bankruptcy petition against the debtor, Mr Forstater, on 13 June 2014. It first came before the court on 30 July 2014, when it was adjourned to allow the  debtor to take legal advice. At the adjourned hearing on 12 August 2014, the debtor indicated that he intended to pursue an IVA. The hearing was adjourned again to await the outcome of a meeting of creditors. The meeting of creditors was itself adjourned for 14 days from 1 September 2014 to 15 September 2014.