High Court dismisses liquidator's dishonest assistance and fraudulent trading claims, rejecting all allegations of dishonesty

The High Court has dismissed in full the claims brought by the liquidator of Transworld Payment Solutions UK Ltd ("TWPS") against First Curaçao International Bank N.V. ("FCIB") and its former president, Mr John Deuss. In so doing, the court has provided guidance on the requirements for establishing fraudulent trading and for advancing serious allegations of dishonesty: Transworld Payment Solutions UK Ltd v First Curaçao International Bank N.V. [2025] EWHC 2480 (Ch)

In a lengthy judgment, the High Court rejected allegations of dishonest assistance and fraudulent trading against FCIB and Mr Deuss and held that large parts of the case were in any event time-barred. The court further held that the claims would separately have been barred by the Curaçao law principle of forfeiture of rights due to earlier settlement agreements (and the negotiations that led to those agreements).

In addition to providing guidance on the requirements for alleging fraudulent trading and dishonest assistance, the judgment considers several issues, including the application of section 32 of the Limitation Act 1980 (the "LA"), the application of the General Rolling Stock principle to foreign insolvency processes, the test for finding that an individual is a de facto or shadow director and issue estoppel.

The judgment draws a clear line between negligent compliance and dishonesty, a distinction with direct implications for banks and financial institutions.

Background

The dispute concerned "missing trader intra-community" ("MTIC") or "carousel" fraud, which was particularly prevalent in the early 2000s. MTIC trading is a sophisticated form of fraud, involving a business (A) importing goods into the UK from the EU, which importation does not require the importer to pay VAT. A then sells those goods domestically to B and charges VAT for which A is bound to account to HMRC. There is then a series of sales from B to C to D to E etc, all of which are accounted for in the ordinary way (eg C will pay B an amount that includes VAT, B will account to HMRC for the VAT received but will claim to deduct the output tax that A has charged to B). The company at the end of the chain, E, will then export the goods to a purchaser in the EU, which export is zero-rated for tax purposes. As E receives no VAT, but will have paid input tax, they are entitled to claim it back from HMRC. A goes missing and does not account to HMRC for the tax paid to it by B. HMRC therefore suffers a loss because it pays out a sum on the export at the end of the chain without having received the major part of the overall VAT due.

In this case, a network of UK trading companies (the "MTIC Companies") had engaged in MTIC fraud involving the sale of mobile phones and computer equipment and had incurred VAT liabilities in excess of £200 million to HMRC. After being placed into liquidation, the MTIC Companies sought to recover the amount of their VAT liabilities from TWPS, which had also gone into liquidation. TWPS and its liquidator in turn sought to pass those liabilities onto FCIB and Mr Deuss (who was the ultimate beneficial owner of TWPS and was the CEO and president of FCIB until it was placed into Emergency Measures in October 2006). It was alleged that the MTIC fraud had been facilitated by FCIB, which provided banking facilities to the MTIC Companies, and by TWPS, which had provided marketing and related services, including the onboarding of new clients, to FCIB. Accordingly, TWPS's liquidator claimed that FCIB and Mr Deuss had dishonestly assisted directors of the MTIC Companies to commit fraud, in breach of their fiduciary duties, and were liable under section 213 of the Insolvency Act 1986 for fraudulent trading.

The defendants denied all allegations of dishonesty and raised several defences, including limitation, issue estoppel and the Curaçao law principle of forfeiture of rights.

Following receipt of a pre‑action letter from TWPS, FCIB commenced proceedings in Curaçao seeking various negative declarations relating to the threatened English claim, including a declaration that FCIB was not liable to TWPS or its liquidator. Those Curaçao proceedings ran in parallel with the English proceedings. In 2024, the Curaçao Court of First Instance declared that FCIB owed nothing to TWPS or its liquidator insofar as their claims were based on unlawful facilitating/assisting in MTIC fraud. An appeal in this claim had yet to be determined when the English High Court handed down its judgment.

Decision

The High Court (Leech J) dismissed TWPS' claims in full.

Dishonest assistance

It was common ground, based on Bilta (UK) Ltd v NatWest Markets plc [2020] EWHC 546 (Ch), that the claimants had to satisfy three requirements in order for the court to impose liability on FCIB for dishonest assistance: (i) the directors of the MTIC Companies must have committed breaches of trust or fiduciary duty; (ii) FCIB or TWPS must have procured or assisted those breaches; and (iii) FCIB or TWPS must have acted dishonestly in doing so (with Mr Deuss' dishonesty attributed to FCIB/TWPS).

As to assistance, the court noted that the authorities use different formulations to describe the potency of the assistance required: in Group Seven Ltd v Nasir [2019] EWCA Civ 614, the Court of Appeal stated that the assistance must have made the breach of fiduciary duty "easier than it would have been"; in Bilta v NatWest, the court used the concept of "more than minimal". In the court's view, it was not sufficient to show that FCIB provided banking facilities which enabled the MTIC Companies to commit MTIC fraud. The claimants would need to prove that FCIB assisted the MTIC Companies in carrying out the specific transactions that gave rise to the VAT liabilities (ie that the funds used to buy/sell the relevant goods passed through FCIB accounts).

The only individual against whom the claimants alleged dishonesty was Mr Deuss. Again, it was common ground that the test set out in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67 applied: first, the court was required to ascertain (subjectively) the actual state of mind of the individual's knowledge or belief as to the facts. Second, the court had to ask whether the individual's conduct was honest or dishonest by applying the (objective) standard of ordinary decent people. It was common ground that blind eye dishonesty would be sufficient, so it would be sufficient to show that the accessory suspected the fiduciary was engaged in wrongdoing and made a conscious decision to look the other way and not investigate.

The court held that FCIB had assisted breaches of fiduciary duty in only 11 of the 19 claims before it, and that TWPS had assisted breaches of fiduciary duty in only 9 of those claims. However, the court went on to reject all allegations of dishonesty against Mr Deuss. The court described the claimants' various allegations of dishonesty as "obscure", "highly artificial" and "an attempt to elevate an allegation of negligence into dishonesty". In so finding, the court refused to draw adverse inferences from evidence concerning sector risks, compliance weaknesses and the use of business language that suggested closed loops of trading (a hallmark of MTIC fraud), amongst other matters.

The court also declined to find that Mr Deuss was a de facto or shadow director of TWPS. The court described Mr Deuss' influence on TWPS as being very general, with his involvement limited to being the ultimate beneficial owner of TWPS and a director of FCIB, TWPS's main customer. There was no evidence that he held himself out as a director, attended board meetings, or received management information. His actions did not amount to assuming the status of a director, and the test for his being a de facto director was therefore not met. The court also rejected that Mr Deuss was a shadow director. There was no evidence adduced that he gave instructions to the de jure directors of TWPS, or that they were accustomed to acting on his instructions. The court found no basis to infer that Mr Deuss had the requisite level of influence over TWPS's board, and as a result the test for Mr Deuss being a shadow director was also not met.

Fraudulent trading

Section 213 of the Insolvency Act 1986 provides that if, in the course of winding up of a company, it is shown that any business of the company has been carried out with intent to defraud creditors or for any fraudulent purpose, any persons who were knowingly parties to the carrying on of the business in that manner may be liable to contribute to the company’s assets. The claimants' claims under section 213 centred around allegations that TWPS, FCIB and Mr Deuss had knowingly participated in the business of the MTIC Companies or TWPS and that the MTIC Companies or TWPS had carried on their businesses to defraud creditors or for fraudulent purposes.

The court summarised the relevant legal principles, including that:

• it is not sufficient for fraud to have occurred in the course of the business of a company; the business of the relevant company must have been carried on with an intention to defraud creditors (Harrington & Charles Trading Co Ltd v Mehta [2022] EWHC 2960 (Ch));
• the words "any persons who were knowingly parties to the carrying on of the business" are not limited to persons exercising management or control over the company, but could include outsiders or third parties (Bilta (HK) Ltd v Tradition Financial Services Ltd [2023] EWCA Civ 112); and
• for an individual to knowingly be a party to fraudulent trading, it is not necessary to show that they knew that a fraud was being carried out or the details of that fraud (with knowledge in this context including blind eye knowledge); it is sufficient for an individual to know that their conduct was connected with a fraud and that they had either the subjective intention to defraud or reckless indifference to whether creditors had been defrauded (London Capital Finance plc v Thomson [2024] EWHC 2894 (Ch)).

The court held that all of the MTIC Companies except one had been carrying on business with the intention to defraud HMRC, being their principal creditor. The court dismissed the allegation that TWPS was a party to the carrying on of that business, however, and so rejected the section 213 claims. The court went on to consider, if it was wrong in that regard, whether Mr Deuss knew that the MTIC Companies were carrying on business with the intent to defraud HMRC or turned a blind eye to the same. Again, the court rejected that argument.

Limitation

Given the court dismissed all allegations of dishonesty, it was not necessary to consider the defendants' limitation defences. However, the court went on to discuss what the impact of limitation would have been in the event it had found Mr Deuss to have acted dishonestly. The court concluded that many of the claims were time-barred under the LA.

Section 21(3) of the LA applied to the claims, which provides for a six-year limitation period. The claimants attempted to argue that the limitation period ceased to run and became suspended when FCIB went into Emergency Measures in 2006 under a principle of insolvency law from the case of Re General Rolling Stock Co (1871-2) LR 7 Ch App 646 (the "General Rolling Stock principle"). Emergency Measures are a Curaçao law regime whereby the Central Bank of Netherlands Antilles (now renamed to Central Bank of Curaçao and Sint Maarten) could assume all management and supervisory powers over FCIB to wind down FCIB and protect its creditors but not amounting to a full liquidation unless and until FCIB was declared bankrupt. Being placed into Emergency Measures would also suspend the running of limitation periods under Curaçao law for unsecured claims against FCIB in Curaçao.

This argument failed. The court held that the principle is limited to companies which are either wound up or put into voluntary liquidation under the Insolvency Act 1986 and does not apply to companies subject to foreign insolvency processes, as was the case with FCIB. The court further stated that if it was wrong and the General Rolling Stock principle does apply to foreign insolvency processes, that process must be analogous to the liquidation of an English company under the Insolvency Act 1986 for the principle to be engaged. In other words, the foreign insolvency process must create the equivalent of a statutory trust and prevent a creditor either beginning or continuing legal proceedings against the company, and the relevant debt must be provable in the insolvency process.

The court also declined to disapply section 21(3) of the LA by applying "modified universalism", the principle that as far as possible, courts should cooperate to ensure that a company’s assets are collected and distributed under a single, central insolvency process, even if those assets are located in different countries.

The court further rejected the claimants' reliance on section 32 of the LA (which postpones the limitation period in cases of fraud) for many of the claims, noting that by 2007 a reasonably diligent liquidator would have had sufficient material to plead a fraud claim against the defendants.

Issue estoppel / forfeiture of rights

Again, given the court's conclusions on Mr Deuss' dishonesty, it was not necessary for the court to consider the effect of issue estoppel or earlier settlements. However, the court provided its views as these points had been fully argued.

The defendants argued that the claimants' claims against FCIB and Mr Deuss were subject to issue estoppel in light of a 2024 judgment of the Curaçao Court of First Instance which conclusively determined on the merits that the claimants had forfeited their right to assert claims against FCIB. The court noted that four conditions had to be satisfied before a foreign judgment could give rise to an issue estoppel as set out in The Good Challenger [2003] EWCA Civ 1668: (i) the judgment must be given by a foreign court of competent jurisdiction; (ii) the judgment must be final and conclusive on the merits; (iii) there must be identity of parties; and (iv) there must be identity of subject matter, ie the issue decided by the foreign court must be the same as that arising in the English proceedings.

The court was satisfied that requirements (i) to (iii) were met but concluded that there was no identity (or no sufficient identity) of subject matter to give rise to an issue estoppel. In that regard, it was noteworthy that the Curaçao Court of First Instance did not have jurisdiction to grant any relief in relation to a claim under section 213 of the Insolvency Act 1986.

Finally, the defendants argued that the Curaçao law principle of forfeiture of rights applied in light of earlier settlement agreements entered between various insolvency practitioners and FCIB. FCIB argued that the purpose of those settlements (and the negotiations that led to them) was to settle all potential claims, to facilitate a wind down of FCIB and to safeguard the interests of its legitimate creditors. The court found that the liquidators acted in a manner that could not be reconciled according to the standards of reasonableness and fairness in bringing the English claims and that their conduct during the settlement negotiations gave rise to a legitimate expectation on the part of FCIB that they would no longer pursue any claims on behalf of TWPS and the MTIC Companies (for example, they did not tell FCIB that the MTIC Companies and TWPS had potential claims against FCIB). Accordingly, the court found that the claimants had forfeited their rights to bring claims against FCIB and, on that basis, dismissed all of the claimants' claims in their entirety.

Other comments

Finally, the court was critical of the claimants’ approach to quantum and funding. It noted that no expert evidence on quantum had been called, which made it more difficult and time-consuming for the court to assess the value of the claims, even if liability had been established. On funding, the court observed that the litigation was structured so that, had the claims succeeded, the main financial beneficiaries would have been the funders and liquidators, with HMRC recovering almost nothing. These points did not determine the outcome of the case, but highlighted the court's concerns about the proportionality and commercial realities of the case before it.