Carbon-credit broker party to fraudulent trading

Court holds broker is within the scope of being a “party to” fraudulent trading where the broker introduced buyers and sellers of carbon credits to trading parties participating in an MTIC fraud.

The Court of Appeal considered an appeal against a High Court decision on fraudulent trading under section 213 of the Insolvency Act 1986. The High Court had held that a broker of carbon credits was knowingly party to a business carried on with the intention to defraud creditors (through a missing trader intra-community fraud).

A previous consent order meant the Court’s consideration of the broker’s actions was limited to specified facts (which the broker since disputed). The assumed facts included that the broker had introduced innocent buyers and sellers of carbon credits to the fraudulent companies. The assumed facts also included that the broker knew that the fraudulent companies were unlikely to be legitimate trading concerns and yet made introductions without any belief the fraudulent companies were spot trading for legitimate purposes. 

The appeal issue was whether the broker could knowingly be party to the carrying on of a business (which had the intention of defrauding creditors) when the broker did not manage or control the fraudulent company. 

The Court of Appeal held that the broker could be deemed a “party to” the fraudulent trading despite not having a controlling or managerial function in the fraudulent company. The Court held this would always be a question of fact requiring careful analysis. The Court noted that whilst there was no case law specifically confirming that this wider interpretation of section 213 was correct, it was compatible to interpret section 213 in this way given the section’s purpose. 

Tradition Financial Services Ltd v Bilta (UK) Ltd [2023] EWCA Civ 112

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