1. business and industrial
2. company
3. bankruptcy

SALLY NASH & CO.,
Solicitors,
3/72 Pitt Street,
SYDNEY NSW 2000
DX 128 SYDNEY
TEL: (02) 9231 5000
FAX: (02) 9231 5711
REF: BNREQUIREMENTS
BANKRUPTCY ACT, 1966, AS AMENDED
FEDERAL COURT ACT, 1981
FEDERAL COURT RULES
FEDERAL MAGISTRATES COURT RULES
1.
BANKRUPTCY PROCEEDINGS UNDER THE FEDERAL COURT
RULES
1.1
On 6th February 2006 the Uniform Bankruptcy Rules were prescribed
under the Federal Court Act and Federal Magistrates Court Act
1.2
1.3
Bankruptcy Procedure is now made up of many components:1.
Bankruptcy Act, 1966 (as amended) (“the Act”)
2.
Bankruptcy Regulations (“the Regulations”)
3.
Federal Court of Australia Act, 1976 and Court Rules
4.
Federal Magistrates Court Act, 1999 and Court Rules
5.
Harmonised Bankruptcy Rules for each Court
The new Rules loosely follow Order 77 Federal Court Rules and
Chapter 4 Federal Magistrates Court Rules.
1.4
The Act and Regulations prescribe those matters which are relevant to
the conduct of a bankruptcy matter and conduct of bankruptcy
proceedings eg. the issue of a Bankruptcy Notice and Bankruptcy
Petition and proof required for a Sequestration Order. The Court Rules
prescribe those matters which must be filed or proved in Court eg. final
Affidavits of Debt, prescribed form of Creditors Petition and service.
1.5
Bankruptcy matters can be listed in either the Federal Court of
Australia or the Federal Magistrates Court. In either Court the matters
are usually heard before a Registrar – usually the same Registrar.
Federal Court matters are listed at 9:15am and Federal Magistrate
Court matters are listed at 10:15am.
1.6
The important fact to remember is that not only do both Court Rules
prescribe
the
particular
course
and
conduct
for
bankruptcy
proceedings, but the whole of the Federal Court Act Rules and Federal
Magistrates Court Act and Rules are now incorporated into the conduct
of bankruptcy proceedings.
1.7
Neither the Federal Court Act and Rules nor Federal Magistrates Court
Act and Rules deals with the issue of Bankruptcy Notices. They are
issued by an Official Receiver and are a prescribed form to the
Bankruptcy Regulations. An example of one appears at attachment
“A”.
1.8
Section 41 of the Act makes specific provision for Bankruptcy Notices in
the following terms:
Bankruptcy notices
(1)
An Official Receiver may issue a bankruptcy notice on the application
of a creditor who has obtained against a debtor a final judgment or
final order that:
(a)
is described in paragraph 40(1)(g); and
(b)
is for an amount of at least $2,000.
(2)
The notice must be in accordance with the form prescribed by the
Regulations.
(3)
A bankruptcy notice shall not be issued in Relation to a debtor:
(a)
except on the application of a creditor who has obtained
against the debtor a final judgment or final order within the
meaning of paragraph 40 (1)(g) or a person who, by virtue of
paragraph 40(3)(d), is to be deemed to be such a creditor;
(b)
if, at the time of the application for its issue, execution of the
judgment or order to which it Relates has been stayed; or
(c)
(5)
(6)
(6A)
(6C)
(7)
1.9
in Respect of a judgment or order for the payment of money
made by the Court in the exercise of the jurisdiction
conferred on it by this Act if:
(i)
a period of more than 6 years has elapsed since the
judgment was given or the order was made; or
A bankruptcy notice is not invalidated by Reason only that the sum
specified in the notice as the amount due to the creditor exceeds the
amount in fact due, unless the debtor, within the time allowed for
payment, gives notice to the creditor that he or she disputes the
validity of the notice on the ground of the misstatement.
where the amount specified in a bankruptcy notice exceeds the
amount in fact due and the debtor does not give notice to the creditor
in accordance with subsection (5), he or she shall be deemed to have
complied with the notice if, within the time allowed for payment, he or
she takes such action as would have constituted compliance with the
notice if the amount due had been correctly specified in it.
where, before the expiration of the time fixed for compliance with the
requirements of a bankruptcy notice:
(a)
proceedings to set aside the judgment or order in Respect of
which the bankruptcy notice was issued have been instituted
by the debtor; or
(b)
an application has been made to the Court to set aside the
bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for
compliance with the bankruptcy notice.
where:
(a)
a debtor applies to the Court for an extension of the time for
complying with a bankruptcy notice on the ground that
proceedings to set aside the judgment or order in Respect of
which the bankruptcy notice was issued have been instituted
by the debtor; and
(b)
the Court is of the opinion that the proceedings to set aside
the judgment or order:
(i)
have not been instituted bona fide ; or
(ii)
are not being prosecuted with due diligence;
the Court shall not extend the time for compliance with the
bankruptcy notice.
where, before the expiration of the time fixed for compliance with the
requirements of a bankruptcy notice, the debtor has applied to the
Court for an order setting aside the bankruptcy notice on the ground
that the debtor has such a counter-claim, set-off or cross demand as
is referred to in paragraph 40 (1)(g), and the Court has not, before
the expiration of that time, determined whether it is satisfied that the
debtor has such a counter-claim, set-off or cross demand, that time
shall be deemed to have been extended, immediately before its
expiration, until and including the day on which the Court determines
whether it is so satisfied.
Regulation 4 regulates the issue of Bankruptcy Notices and provides as
follows:
BANKRUPTCY REGULATIONS - REG 4.01
PART 4 - PROCEEDINGS IN CONNEXION WITH BANKRUPTCY
DIVISION 1 - Bankruptcy notices
Application for bankruptcy notice
4.01. (1)
In order to apply for the issue of a bankruptcy notice, a
person must lodge with the Official Receiver:
(a)
a duly completed draft bankruptcy notice; and
(b)
one of the following documents in Respect of the final
judgment or final order specified by the person on the
approved form:
(c)
(2)
(i)
a sealed or certified copy of the judgment or order;
(ii)
a certificate of the judgment or order sealed by the
court or signed by an officer of the court;
a copy of the draft bankruptcy notice for the Official
Receiver's Records and sufficient additional copies of the
draft bankruptcy notice for service and for annexure to any
required affidavits of service. [NOTE: For bankruptcy notices,
see r. 4.02 and Form 1.]
If documents are lodged with the Official Receiver in accordance
with sub regulation (1), he or she must sign (by hand or by facsimile
Reproduction) and date the copies of the bankruptcy notice lodged in
accordance with paragraph (1) (c), and Return to the applicant the
additional copies referred to in that paragraph.
Form of bankruptcy notices
4.02. (1)
For the purposes of subsection 41 (2) of the Act, the form of
bankruptcy notice set out in Form 1 is prescribed.
1.10
(2)
A bankruptcy notice must follow Form 1 in Respect of its format (for
example, bold or italic typeface, underlining and notes).
(3)
sub regulation (2) is not to be taken as expressing an intention
contrary to section 25C of the Acts Interpretation Act 1901. [NOTE:
Under section 25C of the Acts Interpretation Act 1901, where an Act
prescribes a form, then, unless the contrary intention appears, strict
compliance with the form is not required and substantial compliance
is sufficient; see also paragraph 46 (1) (a) of that Act for the
application of that Act to legislative instruments other than Acts.]
The control of the issue of Bankruptcy Notices has passed from a
Registrar in Bankruptcy to the Official Receiver. At present the filing fee
with ITSA is $300.00.
1.11
The Official Receiver retains a copy of the Notice as issued and allocates
a number for the Notice – this is not a Court proceeding number.
1.12
The Notice is current for service purposes for 6 months unless extended.
Should an extension of the life of the Notice be required this is an
administrative procedure at the office of the Official Receiver and a
certificate of extension for a further 6 months is given or a written
application is made which is by letter. The certificate of extension must
be served with the Bankruptcy Notice.
2.
SERVICE OF BANKRUPTCY NOTICES
2.1
Regulation 4.01(2) states:“Service of bankruptcy notices
(2)
2.2
Subject to sub regulation (3), a bankruptcy notice must be served
within:
(a)
the period of 6 months commencing on the date of issue of
the bankruptcy notice; or
(b)
any further period that the Official Receiver allows (whether
within or outside that period of 6 months).
Service of Bankruptcy Notices is now regulated under the Bankruptcy
Regulations. Regulation 16.01 provides as follows:
Service of documents
16.01. (1) Unless the contrary intention appears, where a document is
required or permitted by the Act or these Regulations to be given or
sent to, or served on, a person (other than a person mentioned in
Regulation 16.02), the document may be:
(a)
sent by post, or by a courier service, to the person at his or
her last-known address; or
(b)
left, in an envelope or similar packaging marked with the
person's name and any Relevant document exchange
number, at a document exchange where the person
maintains a document exchange facility; or
(c)
left, in an envelope or similar packaging marked with the
person's name, at the last-known address of the person; or
(d)
personally delivered to the person; or
(e)
sent by facsimile transmission or another mode of electronic
transmission:
(i)
to a facility maintained by the person for Receipt of
electronically transmitted documents; or
(ii)
in such a manner (for example, by electronic mail)
that the document should, in the ordinary course of
events, be Received by the person.
(2)
A document given or sent to, or served on, a person in accordance
with sub regulation (1) is taken, in the absence of proof to the
contrary, to have been Received by, or served on, the person:
(a)
in the case of service in accordance with paragraph (1) (a) or
(b) - when the document would, in the due course of post or
business practice, as the case requires, be delivered to the
person's Address or document exchange facility; and
(b)
2.3
in the case of service in accordance with paragraph (1) (c),
(d) or (e) - when the document is left, delivered or
transmitted, as the case requires.
A practice had arisen to make applications for substituted service of a
Bankruptcy Notice, but now Regulation 16 is usually invoked. This is not
something that is permitted specifically under s. 40(1)(g) which provides
for service "on the debtor in Australia or, by leave of the Court,
elsewhere," as the leave of the Court is only required for the purposes of
service outside the Commonwealth of Australia.
See Battenberg v
Restrom [2006] FCAFC 20 (7 March 2006)
2.4
The power to order substituted service arises from the powers contained
in s. 30(1) and s. 309(2) which provide as follows:
Section 30(1)
General powers of Courts in bankruptcy
(1)
The Court:
(a)
has full power to decide all questions, whether of law or of
fact, in any case of bankruptcy or any matter under Part IX, X
or XI coming within the cognizance of the Court; and (b) may
make such orders (including declaratory orders and orders
granting injunctions or other equitable Remedies) as the
Court considers necessary for the purposes of carrying out or
giving effect to this Act in any such case or matter.
Section 309(2)
Service of notices etc.
(2)
where a notice or other document is required by this Act to be
served on or given to a person, the Court may, in a particular
case, order that it be given or served in a manner specified by the
Court, whether or not any other manner of giving or serving the
notice or other document is prescribed.
2.5
It is clear therefore that unless service is shown to be personal the
provisions of the Bankruptcy Regulations as to service give rise to a
rebuttable presumption, the burden of proof of which is upon the
person served.
2.6
In Theodor Silvas (a bankrupt) and the Official Trustee in Bankruptcy
(unreported 4 April 1997) Tamberlin J on an application for substituted
service in the context of a submission that personal service was no
longer required stated:
"However, prima facie, it does seem to me that the effect of Regulation
16.01 of the Bankruptcy Regulations enables non-personal service of a
Bankruptcy Notice to be affected. However, this is prima facie evidence
of service; it is open to the debtor, in due course, to adduce evidence to
the contrary (Regulation 16.01(2))."
2.7
In Drake v Stanton [1999] FCA 1635 (5 November 1999), Tamberlin J
also had to consider the issue of whether or not service had been
effected in accordance with Regulation 16.01(a) being sent by post “to
the person at his or hers last known address”. His Honour considered
whether in fact the meaning of ‘last known address’ was the same as
‘ordinary place of residence or ordinary place of business’ and concluded
it was not. It was the last known address of the debtor known to the
creditor. This case states:“The references to “usual place of abode”, of course, and to “resides”,
refer to the residential address of Mr Stanton. That is not the expression
which is used in the relevant provision, as Mr Skinner points out for the
judgment creditor. The relevant expression is “the last-known address of
the person” and it does not matter whether the debtor currently lives or
resides there or not. The expression is difficult on one view in the sense
that it does not indicate to whom the address must be known in order to
satisfy the requirements of the person. On one view of it, it could be
taken to be the knowledge of the creditor. Alternatively, as advanced by
Mr Skinner, the words could mean the last known address of the person
in an objective sense, namely that address at which the debtor could be
said to be located………….
In my view, on the language of reg 16.01(1)(c), the reference to “last
known address of the person” is to that address which has been made
known by the applicant as at the time closest to the date in question. In
the present case the evidence indicates clearly that the address which
was last asserted by the applicant was the address at 396 Grey Street.
The applicant has not been called to given any evidence to the
contrary……”
2.8
VonDoussa J in Re Tadeusz Stec; ex parte Peter Scragg (unreported) 30
May 1997 dealt with service of a photocopy of the Bankruptcy Notice and
found that, in that case, service of a copy of a Bankruptcy Notice was not
proper service as it did not comply with the Rules.
2.9
With overseas movements of debtors it is important to be able to serve
outside the jurisdiction or obtain substituted service inside the
jurisdiction. In Battenberg v Restom, in the matter of Battenberg [2005]
FCA 1184 (26 August 2005) Gyles J found leave to serve on a solicitor
in Australia where the debtor was overseas was not service outside the
jurisdiction and leave was not required. This was upheld by the Full
Court. Also in Edge Technology Pty Ltd v Wang [2000] FCA 1586
Conti J made a Sequestration Order on the basis that the debtor had
departed Australia and it was an act of bankruptcy under s40(1)(c ) of
the Act and made a Sequestration Order. The document required to be
served is the Notice issued by the Official Receiver signed in the
manner prescribed in Regulation 4.01(2).
2.10
If service is affected in the manner set forth in paragraphs (a), (b) and/or
(c) of Regulation 16.01(1). In the case of paragraph (c) the deeming is
said to occur when the document is "left" and therefore the 21 days runs
from that date. In the case of service in accordance with paragraph (a) it
is said that it is deemed to have been served "in the due course of post or
business practice". In the case of service by post therefore, the Evidence
Act 1995 relating to service by post would apply deeming service to be
four business days following upon it being placed in the post (s. 130). If
left, under (c) and posted or transmitted in the manner provided for in (a),
(b) or (e) potentially confusion can arise in relation to the service.
Sundberg J dealt with an instance of this in Garrick Lewis Grey
v.
Michael Lee Ball (unreported) 24 December 1997, where the Bankruptcy
Notice was both left at the office of the debtor and posted to him. In that
case one was said to have been served on 26 August 1997 and the other
on 23 October 1997. Sundberg J adopted the approach of extending the
time for compliance with the Notice served on the latter of the two dates
so as to permit an application to set aside the Bankruptcy Notice which
had been filed prior to that time.
2.11
If the certified copy of judgment or sealed judgment or sealed order is not
attached when it is served, Genovese v BGC Construction Pty Ltd [2006]
FCA 105 the Bankruptcy Notice is invalid.
2.12
If there is no personal service then the Registrar will require additional
evidence that the address is “the last known address”, eg:-
2.13
•
real property search
•
advice from process server of conversations
•
correspondence
•
rate notices
•
copy of Affidavit of Service in other proceedings
•
copy Affidavits sworn in other proceedings
Recently the Federal Court considered Regulation 16.01 and service in
Lazar v Seccombe [2005] FCA 1652 and stated:“24.
25.
26.
Whilst it might be thought that this constituted an election on Mr
Gray's part, I am satisfied on the evidence before me that I
ought not to exercise my discretion to set aside the bankruptcy
notice. I think the preferable course is the one adopted by Hely J
in Sunderland. I have come to this view because I am satisfied
that the bankruptcy notice was left at a place which the applicant
gave as his address in sworn evidence. Moreover, he received
the bankruptcy notice and he gave it to a solicitor.
The only question for the purposes of Regulation 16.01(c) is
whether it was left in an envelope. The evidence on that topic
was incomplete. If, as the applicant asserted in crossexamination, it was not in an envelope when it was handed to
him by his employee, that would not satisfy me that it was not
delivered to Ms Neels in an envelope.
Ms Neels was not called to give evidence, notwithstanding that
the applicant undertook what seemed to me to be its burden on
this application of demonstrating that the bankruptcy notice was
not served in accordance with the regulations. I should add that
Mr Gray submitted that the admission made by the applicant in
cross-examination that he had received the bankruptcy notice
from Ms Neels satisfied Regulation 16.01(d). He cited no
authority in support of the submission.”
3.
TIME AT WHICH VALIDITY OF BANKRUPTCY NOTICE TO BE
DETERMINED
3.1
The validity of all Bankruptcy Notices is to be determined as at the date of
issue. (Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337
at 340). Although if a stay of execution on the judgement takes effect
prior to the date of service of the Bankruptcy Notice this may also
invalidate the Notice as the Notice does not become effective until
service has been effected. (Schekeloff; ex parte Schekeloff v. Hopkins
Group Pty Ltd (1989) 86 ALR 645 Re: Johnson ex parte Johnson v
Tonkin (1994) 123 ALR 607 at 612).
4.
NAME AND ADDRESS OF JUDGMENT CREDITOR
4.1
A failure to state the creditor’s address at all results in a void
Bankruptcy Notice (Re St Leon ex parte National Australia bank
Limited (1994) 54 FCR 371 at 378 and Re: Ma ex parte Farrow
Mortgage Services Pty Limited (in liquidation) (1995) 58 FCR 444).
4.2
It is not an objection to a Bankruptcy Notice that the judgment creditor’s
address in it is shown as care of its solicitors (Re: Nugent ex parte
Nugent (1985) 5 FCR 161, Nugent v Brailkim Pty Limited (1985) 61
ALR 725, Re: Pugliese ex parte Chase Manhattan Bank of Australia
Limited (1993) 44 FCR 536). In those matters it may not be a proper
statement of the judgment creditor’s address but may be an address to
which it is reasonably practicable to make payment in accordance with
the terms of the Bankruptcy Notice or to secure or compound the
amount claimed to the satisfaction of the judgment creditor. (Nugent v
Brialkim Pty Limited at 728); (The Owners Corporation formerly The
Proprietors Strata Plan 3438 v Geoffrey Stephen Hudson – Lindgren J.
unreported 3rd July 1998)
4.3
If the address stated is one at which the judgment creditor may make a
payment of the outstanding debt claimed or secure or compound it to
the satisfaction of the judgment creditor the notice must not be so
expressed so as to require payment at that address to the exclusion of
any other place where the judgment creditor may be found (James v
Commissioner of Taxation (1955) 93 CLR 631).
5.
ISSUES TO SET ASIDE THE BANKRUPTCY NOTICE
5.1
Prior to being able to issue a Creditor’s Petition it is essential that within 6
months prior to the presentation of that petition the debtor have
committed an act of bankruptcy (s. 43(1)(a)). It is not necessary for the
act of bankruptcy to be committed in respect of the debt owing to the
petitioning creditor, although this is normally the case.
5.2
Of the acts of bankruptcy relied upon in practice the most common is that
arising from the issue, service and non-compliance with a Bankruptcy
Notice issued pursuant to s. 40(1)(g), which provides as follows.
(g)
if a creditor who has obtained against the debtor a final judgment or
final order, being a judgment or order the execution of which has not
been stayed, has served on the debtor in Australia or, by leave of the
Court, elsewhere, a bankruptcy notice under this Act and the debtor
does not: (i) where the notice was served in Australia--within the time
specified in the notice; or (ii) where the notice was served elsewhere-within the time fixed for the purpose by the order giving leave to
effect the service; comply with the requirements of the notice or
satisfy the Court that he or she has a counter-claim, set-off or cross
demand equal to or exceeding the amount of the judgment debt or
sum payable under the final order, as the case may be, being a
counter-claim, set-off or cross demand that he or she could not have
set up in the action or proceeding in which the judgment or order was
obtained;
5.3
That section is to some degree regulated by s. 40(3) of the Act.
5.4
The act of bankruptcy provided for in s. 40(1)(g) is committed when the
21 days prescribed in the notice expires (Re: Prow ex parte Dalgety
Farmers Ltd (1985) 5 FCR 233)) although if the date for compliance
expires on a day when the office of the Court is closed it expires on the
next day the Court is open (Re: Green (1947) 14 ABC 109)) and the
Court has power to extend the time for compliance under s. 41(6) and, in
appropriate circumstances to set aside Bankruptcy Notices and extend
time under s. 30(1) (Re: Sterling; ex parte Esanda Limited (1980) 3 ALR
77), especially if it is of the view the issue of a Bankruptcy Notice is an
abuse of process. See Athans; ex parte Athans [1991] 29 FCR 302 at
310.
5.5
What is essential is a final judgment or order as a pre-condition to the
issue of a Bankruptcy Notice is a judgment that finally disposes of the
rights between the parties (Carr v. Finance Corporation of Australia Ltd
(1981) 147 CLR 246). Examples of circumstances where a creditor does
not have a final judgment or order are:
(a)
A Maintenance agreement approved by the Family Court of
Australia (Re Stephens; ex parte Stephens (1982) 40 ALR 420);
and
(b)
where the payment required under the final judgment or order is
not a payment to the "creditor" but rather to some other party
(Abigroup Ltd v. Abignano (1992) 112 ALR 497).
(c)
An order for costs obtained in proceedings between the parties is
capable of being the subject of the issue of a Bankruptcy Notice
provided that it is still enforceable and execution has not been
stayed. In the Supreme Court and District Court of New South
Wales orders for costs in interlocutory proceedings unless
expressed to be payable forthwith or recoverable forthwith are not
recoverable until the conclusion of proceedings.
(d)
A Form 3 Assessment of Costs under the Legal Profession Act.
To be a final judgment this form must be registered in a State
Court. See Franks v Warringah Council; Franks [2003] FCA 1047.
5.6
If the debtor has a counter claim set-off or cross demand equal to or
exceeding the amount of the judgment debt being, at the same time, a
counter claim set-off or cross demand that he could not have set up in
the action or proceeding in which the judgment or order was obtained, an
application to set aside the Bankruptcy Notice can be made. In relation
to this qualification it is necessary for the debtor to at least establish by
evidence that:
(a)
There is a legal basis for the claim specifying the cause of action
alleged.
(b)
Outline the exact facts relied upon.
(c)
Give reasons why the counter claim could not have been set up
previously in the proceedings in which the judgment the subject of
the Bankruptcy Notice was issued.
5.7
Importantly the extension is deemed to have occurred upon the filing of
the application under s41(7).
A formal order for extension is not
necessary.
5.8
The object of the inclusion of a qualification to s. 40(1)(g) as set out
above is clearly to provide a machinery for the setting aside or
satisfaction of a Bankruptcy Notice where a judgment debtor has a cross
demand so as to prevent a judgment creditor from pursuing bankruptcy
proceedings when, as between himself and the judgment debtor, the
balance of the account is in favour of the judgment debtor. It is however,
necessary for the application to set up the cross claim set-off or cross
demands within the time limited for compliance with the Bankruptcy
Notice. This is by application to the Federal Court or Federal Magistrates
Court and if made within time, gives an automatic extension on the act of
bankruptcy.
5.9
It is necessary for a debtor wishing to claim a set-off cross demand or
cross claim to file an Application in the Federal Court of Australia in the
same manner as any application to set aside a Bankruptcy Notice.
(a)
A "set-off" provides a defence for it diminishes the amount
claimed;
(b)
A "counter claim" is a claim which the debtor might have had
against the plaintiff and that can be heard in the action started by
the plaintiff against him; and will likewise act as a defence not to
the judgment creditor’s claim but it will result in relief being
available in favour of the debtor against the creditor claiming
against him.
(c)
"Cross demand" was described as:
"Cross demand" seems to me to be a word introduced in
order to give a wider ambit to the meaning of these claims,
something that would not be described, certainly as a setoff, something that could not have been brought in the
action, something that still lies outside a counter-claim, but
is of a nature which can be specified and which is of such a
nature that it equals or exceeds the amount of the
judgment debtor. The words "could not have set up" in the
paragraph mean "could not by law have been set up in the
action"
(Re Brink ex parte Commercial Banking Co of Sydney Ltd
(1980) 30 ALR 433 at 437).
5.10
See also Giuseppe Emanuele v Ronald Alwin Bates, Brian Bates and
Ors [1997] 1545 FCA which states:“The counter claim or set-off which the debtor seeks to raise in answer
to the sum claimed in the bankruptcy notice is in respect of moneys
due to the debtor under costs' orders made in his favour in proceedings
in respect of the bribery charge laid in the Magistrates Court. Mr Dau
was the informant in those proceedings. After the conviction was
quashed, Higgins J ordered that the informant pay the sum of $600,000
as costs to the debtor. These costs have already been paid. Further,
Higgins J ordered that the informant pay the debtor his costs of the
appeal to the Supreme Court of the Australian Capital Territory. The
Full Court of the Federal Court also ordered that the informant pay the
debtor his costs of the appeal to that Court. These two orders for costs
("the bribery charge costs") have not yet been taxed, but an affidavit
filed in support of the present application from Peter John Norman, a
solicitor with expertise in legal costing, deposes to the fact that he has
drawn draft bills in the sums of approximately $396,000 and $41,000
respectively which will be lodged for taxation. For present purposes it
may be accepted that when the costs are taxed, allocaturs will issue for
substantially more than the amount claimed in the bankruptcy notice.
The order for the civil proceedings costs upon which the bankruptcy
notice is founded is an order made in favour of the eight parties jointly
who constitute the judgment creditors. As joint creditors it was
necessary for all of them to apply for the issue of the bankruptcy notice:
Australian Workers' Union v Bowen and Re Thompson; ex parte
Thompson v Grimley Pty Ltd (1995) 135 ALR 700 at 708-710.
Where a debtor seeks to set aside a bankruptcy notice on the ground
that the debtor has a counter claim, set-off or cross demand which
equals or exceeds the amount of the judgment debt on which the
bankruptcy notice is founded, the counter claim, set-off or cross
demand must be mutual and due in the same right: see Edwin John
Brown (1923) 40 WN (NSW) 73, Re Wedd; ex parte Wedd v Parker
(1961) 19 ABC 36, and James v Abrahams (1981) 51 FLR 16 at 27-29
per Fisher J. In answer to a bankruptcy notice issued by several joint
creditors the debtor may not raise a debt owed to one of the creditors
individually. He may only raise as a counter claim, set-off or cross
demand a monetary liability owed to the debtor by all the creditors
jointly: James v Federal Commissioner of Taxation (1955) 93 CLR 631
at 643.
In the present case counsel for the judgment creditors contends that
the debtor's application must be dismissed as the counter claim or setoff which the debtor seeks to raise is not due in the same right. The
debtor seeks to set up a monetary liability owed to him solely by Mr
Dau whereas the claim against him is in respect of a liability owed
jointly to the judgment creditors.
In my opinion the extension deemed to occur by s 41(7) is intended to
cover exhaustively the situation where an application is made to have a
bankruptcy notice set aside on the ground that the debtor has a counter
claim, set-off or cross demand, and the more general power to extend
time to comply with a bankruptcy notice contained in s 41(6A) has no
application. But in any event, the power to extend time for compliance
in s 41(6A) is a power in aid of setting aside the notice itself: Re
Stirling; ex parte Esanda Ltd (1980) 44 FLR 125 at 129-130, and
McLean v ANZ Banking Group Ltd (1993) 42 FCR 300 at 305. In this
case, once the Court has determined that it is satisfied that the debtor
does not have a counter claim, set-off or cross demand as referred to
in s 40(1)(g) there is no occasion to exercise such a power to further
extend time for compliance with the notice. However, at the request of
the parties, I shall publish these reasons, and then hear counsel as to
the orders which the Court should make.”
6.
FORMAL OR FATAL DEFECT IN BANKRUPTCY NOTICE
6.1
It is clear that a Bankruptcy Notice will be a nullity if it fails to meet a
requirement made essential by the Act, or if it could reasonably mislead a
debtor as to what is necessary to comply with the notice in such cases
the notice is a nullity whether or not the debtor is in fact misled (Kleinwort
Benson) (supra)
6.2
In the last 6 years there has been a conflict of authority as to whether or
not the Bankruptcy Notice “must be in accordance with the form
prescribed” and whether an error in the Notice was such and whether the
form now prescribed is a requirement “made essential” by the Act and
therefore any minor infringement is incapable of the application of
Section 306 of the Bankruptcy Act and fatally flawed and unable to found
an act of bankruptcy or a Creditors Petition.
6.3
The two lines of authority were set down by the Full Court in Bendigo
Bank Ltd v Williams [2000] 98 FCR 377 which determined that a Notice
must be in accordance with the prescribed form and that a requirement
for the statement of interest, interest calculations and the Act and section
under which interest calculations were made was a term made essential
by the Act and non compliance with that term made the Bankruptcy
Notice invalid.
6.4
On the other hand, the Full Court in Kirk v Ashdown [1999] FCA 1664
held that such a defect was minor and formal only and capable of the
application of Section 306 automatically.
Similarly, the Full Court in
Trustees of the Franciscan Missionaries of Mary v Weir [2000] 98 FCR
447 came to a similar conclusion.
6.5
Three cases were listed before a specially convened five member Bench
of the Full Court of the Federal Court in 2000 on a referral from a
Registrar not as an appeal, and the judgment in the three cases handed
down on 22 December 2000. In a split 3/2 decision, the Court dismissed
Bankruptcy Petitions in the following cases:(a)
Australian Steel Company (Operations) Pty Ltd v Lewis [2000]
FCA 1915
(b)
Royal & Sun Alliance Workers Compensation Ltd v Oakes
(c)
Metropolitan Fire & Emergency Services Board v Zemlic
The defect complained of was that the Bankruptcy Notice incorrectly
described the Section and Act under which the calculation of interest
was made.
6.6
In Australian Steel Company (Operations) Pty Ltd v Lewis the Federal
Court and in particular Black CJ at paragraph 42 set out the purpose of
the requirement for interest being:“In our view the purpose of the requirement that the source of the
creditor’s entitlement to interest be stated can only be to enable the
debtor to verify the amount claimed is in fact due…………….
The interest rate can often be a matter of dispute…………….The
purpose behind the requirement that the provision under which interest
is being claimed and correctly claimed, be included in the Notice, that
requirement is made essential by the Act and a Notice issued in breach
of that requirement would be invalid”
6.7
The majority in Re: Lewis considered the decision of the High Court in
Kleinwort Benson Australia Ltd v Crowl [1998] 165 CLR 71 whether the
defect was irregular or substantive or formal and if formal only, has it
occasioned substantial irredeemable injustice? (Paragraph 28 Lewis).
6.8
However the High Court in Adams v Lambert [2006] HCA 10 has now
put to rest the above issues. It states:-
“21.
In Wright v Australia & New Zealand Banking Group Ltd,
Beaumont J pointed out that it is a well settled principle of
construction that a written instrument must be construed as a
whole, and that, as Dixon CJ and Fullagar J said in Fitzgerald v
Masters, "[w]ords may generally be supplied, omitted or
corrected, in an instrument, where it is clearly necessary in order
to avoid absurdity or inconsistency". A striking example of the
application of a cognate principle of statutory construction is to
be found in Cooper Brookes (Wollongong) Pty Ltd v Federal
Commissioner of Taxation. If a question had arisen in the
present case as to whether, considered as a whole, the
bankruptcy notice was claiming pre-judgment or post-judgment
interest, the answer would be clear. That is not the precise
question that arises. Rather, the question is whether the notice
complies with the requirements of the Act. Even so, the
consideration that, on the true construction of the notice as a
whole, it is clear that the claim is for post-judgment interest, is
part of the context in which s 306 is to be applied.
26.
The question of construction raised by the words "a formal
defect or an irregularity" is one to be decided by reading s 306 in
the context of the whole Act, informed by the general purpose of
the legislation, and the particular purpose of the provisions
relating to bankruptcy notices. It is similar to the question that, in
former times, would be explained by asking whether a statutory
requirement was mandatory or directory. In Project Blue Sky Inc
v Australian Broadcasting Authority it was said: "A better test ...
is to ask whether it was a purpose of the legislation that an act
done in breach of [a] provision should be invalid ... In
determining the question of purpose, regard must be had to 'the
language of the relevant provision and the scope and object of
the whole statute'".
27.
If, as in the present case, what is in question is an error in the
form of a misdescription of a statutory provision, then a
consideration of the general purpose of the Act, and the
particular purpose of the legislative scheme relating to
bankruptcy notices, leads readily to a conclusion that if the error
could reasonably mislead a debtor as to what is necessary to
comply with the notice it is not merely a formal defect or
irregularity. Any error is capable of misleading somebody about
something. When the respondent saw the bankruptcy notice in
this case he may well have concluded that s 83A was the
section of the District Court Act dealing with post-judgment
interest. In that respect, he would have been misled. When Mr
Crowl read the bankruptcy notice in his case, he might have
been given the temporary satisfaction of believing that his debt
was $23,000 less than was in fact owing. In that respect, he
would have been misled. (A debtor who receives a notice
involving an overstatement of a kind expressly relieved against
by s 41(5) of the Act might receive a very unpleasant surprise).
What this Court regarded as relevant to s 306, however, was
misleading a debtor about what is necessary to comply with the
notice. That kind of misleading, the Court said, takes an error
outside the concept of a formal defect or irregularity. However,
that is not the full extent of the exclusion.
28.
The other exclusionary aspect of the expression "a formal defect
or an irregularity" in s 306 was said to consist in a failure to meet
a requirement made essential by the Act. Here again, the word
"essential", in its application in a particular case, involves a
conclusion. If a requirement is made essential by the Act, then a
failure to meet that requirement is not a formal defect or an
irregularity within the meaning of s 306. Whether a requirement
is made essential is to be decided by a process of statutory
construction undertaken in the manner described above. The
majority in Lewis regarded the error in that case as involving a
failure to meet a requirement made essential by the Act.”
7.
EFFECT OF STAY OF EXECUTION OF JUDGMENT DEBT
7.1
The paragraph also makes provision for the final judgment or final order
being one "the execution of which has not been stayed". In this context:
(a)
A Bankruptcy Notice either served or issued whilst a stay of
execution remains in force will be bad – Re: di Giacomo ex parte
Boral Steel Ltd (1983) 68 FLR 106.
(b)
If a stay is granted after the service of a Bankruptcy Notice it has
no effect on the Bankruptcy Notice Schekeloff; ex parte Schekeloff
v. Hopkins Group Pty Ltd (1989) 86 ALR 645.
(c)
If the stay is obtained after the expiry of the Bankruptcy Notice it is
of no effect - Re Padagas; ex parte Carrier Air Conditioning Pty
Ltd (1977) 30 FLR 170.
7.2
Where a stay has been in force in respect of the final judgment or final
order which is sought to be the subject of the Bankruptcy Notice the stay
is not regarded as having been removed until the requirements of the
rules of the relevant Court for the removal of the stay have been satisfied.
If they have then it is possible to issue a valid Bankruptcy Notice, if they
have not the Bankruptcy Notice is bad (Re Frasersmith; ex parte
Blackwood & Son Ltd (1992) 36 FCR 144.
8.
GOING BEHIND THE JUDGMENT
8.1
Because of the nature of a Sequestration Order and the fact that a
Sequestration Order affects the rights of all of the creditors of the debtor
not merely the petitioning creditor and the debtor (Wren v. Mahony
(1972) 126 CLR 212 at 234) where reason is shown for questioning
whether there was "in truth and reality" a debt due to the petitioning
creditor. The Court does not have to accept the judgment as satisfactory
proof. The Court can exercise its power and discretion to look at what is
behind the judgment. It is however, a two stage process.
8.2
In the context of final judgments and final orders the Court has a different
approach depending upon whether or not there has been a judgment on
the merits or the judgment is obtained "by default". If there has been a
judgment on the merits it would be normal for the Court to decline to go
behind the judgment unless it could be shown that it was obtained in
circumstances involving fraud, collusion or a miscarriage of justice (in
Olivieri v. Stafford (1989) 24 FCR 413.
8.3
In the case of a default judgment the burden is upon the debtor (Woolf v.
Donovan (1991) 29 FCR 420 to show that there is a bona fide question
as to the existence of consideration for the default judgment at which time
it is then bound to exercise its power and discretion to look at what is
behind the judgment, but only to the extent to establish whether or not to
accept the judgment as proof of the debt (Corney v. Brien (1951) 84
CLR 343 at 359, Wren v. Mahony (1972) 126 CLR 212 at 224 and
Olivieri v. Stafford (1989) 24 FCR 413. Once the Court finds that there
is doubt as to whether there is a debt in truth and reality the burden of
proof shifts to the petitioning creditor, or judgment creditor as the case
may be (Corney v. Brien) (1951) 84 CLR 343 at 358. It must always be
remembered that the fact that the debtor may have applied to the Court
in which the final judgment or final order had been made to set aside the
judgment and failed does not alter the character of the judgment as being
a default judgment, if that is the case and therefore does not preclude the
Court exercising jurisdiction in Bankruptcy from going behind it (Re:
Marshall; ex parte James Hardie & Co Pty Ltd (unreported Burchett J 16
August 1989).
8.4
Whilst there does not appear by the section to be any express provision
in the Bankruptcy Act conferring upon the Federal Court power to set
aside Bankruptcy Notices the general powers contained in s. 30(1) would
appear to give sufficient power to do so. Further, the Court does have
the power to give effect to the express power to extend the time for
compliance with the Bankruptcy Notice.
9.
REVIEW OF REGISTRAR’S DECISION
9.1
The jurisdiction of both the Federal Court and Federal Magistrates Court
enables the review of any order made by a Registrar to be reviewed by a
Judge or Federal Magistrate. The application must be filed within 21
days.
9.2
It is a de novo hearing and accordingly fresh Affidavits of Search and
Affidavits of Debt are required on the final hearing.
9.3
See Adelaide Bank Ltd v Badcock (2002) FMCA 10 in which the bankrupt
debtor acting for himself sought to review the decision of the Registrar
making a Sequestration Order.
The matter was reheard before the
Federal Magistrate and the Court indicated it would make a
Sequestration Order and adjourned the matter for final orders. See also
Martin & Anor [2005] FCA 87.
9.4
It is important that the act of bankruptcy be made certain. See Alister
Byron v Southern Star Group Pty Ltd (1997) 151 FCA (11 March 1997).
10.
AFFIDAVIT VERIFYING PARAGRAPH 4
10.1
This affidavit is required to prove the act of bankruptcy pleaded in
paragraph 4 of the Creditors Petition. It establishes and verifies the act of
bankruptcy, eg non-compliance with the Bankruptcy Notice.
10.2
The affidavit should state:
(a)
Details of any application for an order setting aside
the Bankruptcy Notice and/or any application for an
order extending the time to comply with the
Bankruptcy Notice, if made, and the result of any
application. Copies of the order disposing of any
application must be attached; and
(b)
The Federal Court and Federal Magistrates Court
records have been searched and no application in
relation to the Bankruptcy Notice has been made in
either Court.
10.3
The Affidavit of Service of the Bankruptcy Notice must be filed.
11.
E-FILING
11.1
The Federal Court from 3 February 2003 became a Court in which
electronic filing can take place.
11.2
The system can be accessed in the Federal Court website at
www.fedcourt.gov.au and select “eCourt” from the main menu and then
select “electronic filing” from the sub menu.
11.3
The Federal Court has a useful data base which can be accessed for
applications which are not necessarily covered by any particular Act or
Rules.
11.4
Signatures are affixed in the normal way but the document is then
scanned and emailed to the Court where it can either be copied or filed
and emailed back with Court seals affixed electronically.
11.5
Fees can be paid on line with the document which is being submitted by
Visa, Mastercard or Bankcard.
11.6
A document is not accepted or filed in the Court until it is received
completed and checked and documents received by 4:30pm are
considered to have been received on the day of filing but after 4:30pm,
on the next day.
11.7
There is a tutorial as well as a number of useful hints and procedures set
out on the website for electronic filing.
Form 1
Regulation 4.02
Bankruptcy Act 1966
BANKRUPTCY NOTICE
This Bankruptcy Notice is prescribed, under subs. 41(2) of the Bankruptcy Act
1966 ("the Act"), by r. 4.02 of the Bankruptcy Regulations.
To:
GRAHAME JOHN FARR
("the debtor")
of:
52 Princes Highway
SUTHERLAND NSW 2232
This Bankruptcy Notice is an important document. You should get legal
advice if you are unsure of what to do after you have read it.
1.
ABC LIMITED (A.C.N. 945 285 623)
("the creditor")
of:
75 George Street
PARRAMATTA NSW 2150
claims you owe the creditor a debt of $9,956.92, as shown in the Schedule.
2.
The creditor claims that the debt is due and payable by you. A copy of
the judgments or orders relied upon by the creditor is attached. At the
time of applying for this Notice, execution of the judgments or orders
had not been stayed.
3.
You are required, within 21 days after service on you of this Bankruptcy
Notice:
(a)
to pay to the creditor the amount of the debt; or
-2(b)
to make an arrangement to the creditor's satisfaction for
settlement of the debt.
[NOTE: The number of days to be inserted is 21 or, if an order has been
made under subparagraph 40(1)(g)(ii) of the Act, the number of days
constituting the time fixed by the order.]
4.
Payment of the debt can be made to:
ABC LIMITED
of:
Sally Nash & Co
Solicitors
3/72 Pitt Street
SYDNEY NSW 2000
[NOTE: The address must be within Australia.]
5.
6.
Bankruptcy proceedings may be taken against you if, within the
time stated in paragraph 3, above:(a)
you do not comply with the requirements of either paragraph 3
(a) or paragraph 3 (b) above; and
(b)
the Court (that is, the Federal Court of Australia or the Federal
Magistrates Court) does not extend, or is not deemed to have
extended, the time for compliance with this Bankruptcy Notice
(see paragraph 6, below).
The Court may extend the time for compliance with this Bankruptcy
Notice if, within the time stated in paragraph 3 above, you apply to the
Court on one or both of the following grounds:
(a)
that you have instituted proceedings to set aside the judgments
or orders in respect of which this Bankruptcy Notice has been
issued;
(b)
that you have filed with the Court an application (on one or more
grounds, apart from the grounds mentioned in paragraph 7,
below) to set aside this Bankruptcy Notice.
-37.
In addition, within the time specified in paragraph 3 above, you may file
an application to the Court for an order to set aside this Bankruptcy
Notice on the specific grounds that:
(a)
you have a counter-claim, set-off or cross demand equal to or
exceeding the sum specified in this Bankruptcy Notice as owing
to the creditor; and
(b)
in the action or proceeding in which the judgments or orders
mentioned in paragraph 2 of this Bankruptcy Notice was
obtained, you could not have set up that counter-claim, set-off or
cross demand*.
*This means that, because of a legal obstacle, you could not have
raised that counter-claim, set-off or cross demand in defence of the
creditor's court action against you. It is not enough if, for example, you
simply neglected or overlooked the matter.
8.
You should note the following points carefully:
(a)
If you file, at the Court, an application mentioned in paragraph 6
(a) or (b), you must still comply with this Bankruptcy Notice
within the time stated in paragraph 3 above unless the Court
extends the time for you to comply.
(b)
If you file, at the Court, an application mentioned in paragraph 7
(a), you need not comply with this Bankruptcy Notice until the
Court decides whether you have grounds for a counter-claim,
set-off or cross demand. Whether you will have to comply at
that stage will depend on the Court's decision.
WARNING
9.
The information in paragraphs 6, 7 and 8 is based on provisions of
section 41 of the Act. The information is a summary only, and not a
complete statement of the relevant law. It might be unwise to rely
solely on this summary. If you need a more detailed explanation, you
should seek legal advice.
-4Schedule
Plus
Plus
COLUMN 1
COLUMN 2
1.
Amount of judgments or orders
$9,561.41
2.
Legal costs if ordered to be paid and a
specific amount was not included in the
judgments or orders (see Note 1 below)
$ NIL
If claimed in this Bankruptcy Notice,
interest accrued since the date of
judgments or orders (see Note 2 below)
$ 395.51
4.
Subtotal
$9,956.92
5.
Payments made and/or credits allowed
since date of judgments or orders
$ NIL
6.
Total debt owing
$9,956.92
3.
Less
(NB: Amounts, where applicable, are to be inserted in column 2)
______________________________________________________________
For the Information of the CreditorNotes to the Schedule
Note 1:
Legal costs (item 2 of the Schedule)
If legal costs are being claimed in this Bankruptcy Notice, a certificate of taxed
or assessed costs in support of the amount claimed must be attached to this
Bankruptcy Notice.
Interest accrued (item 3 of the Schedule)
Note 2:
If interest is being claimed in this Bankruptcy Notice, details of the calculation
of the amount of interest claimed are to be set out in a document attached to
this Bankruptcy Notice. The document must state:
(a)
the provision under which the interest is being claimed; and
(b)
the principal sum on which, the period for which, and the interest
rate or rates at which, the interest is being claimed.
(NB: If different rates are claimed for different periods, full details must be
shown)
-5-
For the Information of the Creditor
Note about use of information
It may be necessary to disclose some or all of the information provided by you
on this Form to Government agencies and departments for any purpose under
the Act. Also, the information may be included on a public record or given to
other persons, bodies or agencies for purposes authorised by the Act.
The person who applied for this notice to be issued is:
SALLY SUSAN NASH
who confirms by the following signature that she is the creditor's authorised
agent:
Sally Susan Nash
and whose address for service is:
Telephone and fax numbers
(including STD code):
DX number (if applicable):
Reference:
C/- Sally Nash & Co
Solicitors
3/72 Pitt Street
SYDNEY NSW 2000
TEL: (02) 9231 5000
FAX: (02) 9231 5711
DX 128 SYDNEY
-6Schedule of Interest
Interest is claimed pursuant to Section 101 Civil Procedures Act, 2005 as
follows:
$9,561.41
2/12/05 – 22/5/06 (172 days) @ 9% p.a.
$395.51
- 31 -
-7-
FOR OFFICIAL USE ONLY
Dated this
day of
, 2006
This notice was issued by the Official Receiver (or
delegate or an officer authorised by the
Receiver) for the Bankruptcy District of
The State of New South Wales
address of Official Receiver
8/135 King Street, Sydney
(signature or stamp of Official Receiver or delegate or
authorised officer