The case of Broom v Aguilar [2024] EWHC 1764 (Ch) addresses significant issues related to insolvency, particularly focusing on when a party resides outside of the jurisdiction. For insolvency practitioners, this judgment serves as a clear reminder that jurisdictional issues and procedural compliance are essential.

Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency cases.

Broom v Aguilar [2024] EWHC 1764 (Ch)

Mrs. Aguilar, a Spanish national, moved to the UK in 1972 and married Michael Chambers. The couple lived in England for over 40 years before moving to Spain in 2014. They owned a house in Arlingham, Gloucestershire, which was sold in 1988 and replaced with a smaller house in Dursley, Gloucestershire. Mr. Chambers used the proceeds to finance his building business, and both properties were mortgaged in their joint names.

However, after Mr. Chambers was declared bankrupt in 1996, Mrs. Aguilar bought his share of the house and became its sole owner. Despite this, Birmingham Midshires refused to remove Mr. Chambers from the mortgage, so it remained in both names, though Mrs. Aguilar made all the payments.

In 2015, Mr. Chambers’s trustee in bankruptcy sought relief under the Insolvency Act 1986, claiming Mrs. Aguilar had unfairly benefited from certain transactions. The trustee failed to serve the application in England and obtained an order allowing service by text, voicemail, Facebook, and delivery to the trustee’s solicitors. The court then heard the case in Mrs. Aguilar’s absence and ordered her to pay £151,396.67, plus £35,799.80 in costs.

When the order was enforced in Spain, Mrs. Aguilar applied for a review under the Insolvency Act but was mostly unsuccessful. She then appealed, focusing on the issue of whether she had been properly served.

The District Judge had initially ruled that the defendant had been properly served through the claimant’s use of alternative service methods. However, this decision was overturned on appeal. The order for alternative service had been granted while the defendant was living abroad, at which point the court had no jurisdiction over her.

The lower court judge concluded that she had been served, relying on the “deeming provisions” in CPR rules 6.15, and stating that it did not matter whether she actually received the proceedings. The judge also determined that the order for alternative service was valid unless and until it was set aside, and no application had been made to do so.

The appellant contended that, because she had never been personally served and was outside the jurisdiction when the application for alternative service was made, the court never had jurisdiction over her. As a result, she argued that the decision made by District Judge Davis on 18 March 2015 should have been set aside by District Judge Taylor, as it was issued without jurisdiction.

The respondent argued that the trustee could not have sought permission to serve the appellant in Spain because he was unaware she was there. He further contended that had he known, he would have applied for and likely obtained permission to serve her abroad. Additionally, the respondent maintained that it is not a legal requirement for a defendant to be within the jurisdiction at the time service is effected for it to be valid.

Judge Matthews concluded that the court had no jurisdiction to make a substantive order in Mrs. Aguilar’s absence because she had not been properly served. At the time of this case, service was governed by the 1986 Insolvency Rules, but current rules now make it clear that service must follow CPR Part 6, whether within or outside the UK.

Why is this case important for insolvency practitioners?

This case is important for insolvency practitioners because it highlights the critical issue of jurisdiction in the service of legal documents, particularly when dealing with individuals residing outside the UK.

The judgment emphasises that courts need jurisdiction over a defendant for legal proceedings to be valid. If the defendant is outside the UK, proper procedures, including obtaining court permission to serve outside the jurisdiction, must be followed. Failing to do so renders any court orders unenforceable.

Insolvency practitioners should be aware that alternative methods of service (such as text or social media) are not a substitute for permission to serve someone outside the jurisdiction. This is especially important when dealing with cross-border debtors or trustees in bankruptcy. 

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following funding methods:

• After-the-event (ATE) legal insurance – ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award. The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.
• Third party litigation funding – In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. ATE insurance is often used in conjunction with this type of funding.
• Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

When handling insolvency matters, insolvency practitioners are obligated to explore all options available in such cases. At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with insolvency and bankruptcy matters. If you are in the process of bringing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.