Autron Pty Ltd v Benk - [2010] FMCA 784

FEDERAL MAGISTRATES COURT OF AUSTRALIA

AUTRON PTY LTD v BENK

[2010] FMCA 784

BANKRUPTCY – Bankruptcy Notice including interest not part of Court order – can interest up to the date of the Notice be included so as to exceed $2,000.00 limit? – consideration of whether interest pursuant to statute is part of the judgment debt.

Bankruptcy Act 1966, ss.41, 52(1)
Magistrates Court Act 1989 (Vic), s.101(7)

Re Henry Wilson (1877) 3 VLR 96
Re Merrington (1929) 2 ABC 154
Re Mullavey [1977] FCA 17
Re Manion (1979) 23 ALR 270

Applicant:

AUTRON PTY LTD (A.C.N. 007 324 110)

Respondent:

MICHAEL GARY BENK

File Number:

MLG 1676 of 2009

Judgment of:

Burchardt FM

Hearing date:

23 September 2010

Date of Last Submission:

6 October 2010

Delivered at:

Melbourne

Delivered on:

7 October 2010

REPRESENTATION

Counsel for the Applicant:

Mr K. Baker

Solicitors for the Applicant:

Macpherson & Kelley

The Respondent:

In person

ORDERS

The application for review filed 26 August 2010 be dismissed.
The Applicant pay the Respondent’s costs to be taxed in default of agreement.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 1676 of 2009

AUTRON PTY LTD (A.C.N. 007 324 110)

Applicant

And

MICHAEL GARY BENK

Respondent

REASONS FOR JUDGMENT

(Revised from Transcript)

This is the creditor’s application for review of a decision of Registrar Pringle given on 6 August 2010. It is, of course, a hearing de novo. The facts in my view are largely clear from the materials filed and the summary I will now give is largely taken from the decision of Registrar Pringle which has been reduced to writing and, of course, has given rise to this application.
On 4 March 2009, the creditor obtained judgment in the Magistrates Court of Victoria for $1,598.44. The actual debt was only $990; the remainder being made up of costs and interest up to judgment. The respondent debtor says that the amount should not have been anything in excess of $660 in any event.
On 12 October 2009 an application for rehearing lodged by the debtor was dismissed by Braun J and a further $381 costs were ordered in respect of that failed application. When the bankruptcy notice that gave rise to these proceedings was issued on 18 November 2009, the sum of interest of $110.80 was also relied upon. That was interest up to the date of the issue of the notice.
The bankruptcy notice was not complied with and a petition was presented on 23 December 2009. An order for substituted service was ultimately made on 23 March 2010. On 6 August 2010, Registrar Pringle heard the matter. The Registrar dismissed the petition as the bankruptcy notice was not based, as the Registrar found it, on a final judgment or order for an amount of at least $2,000. Registrar Pringle concluded that while post-judgment interest can be relied on to ground a debt upon which a petition is presented, it cannot be relied on to exceed the $2,000 judgment or final order for the purposes of a bankruptcy notice.
Because this is a hearing de novo, I have to be satisfied as to the matters contained in s.52(1) of the Bankruptcy Act 1966 (“the Act”). No issue has, however, been raised as to these matters. The creditor has recently filed an affidavit of search, an affidavit of service and an affidavit of debt in addition to the earlier affidavits filed satisfying these requirements.
I do not think it is necessary but to avoid any doubt I will waive further compliance with the Bankruptcy Rules. Thus, I am satisfied as to matters contained in s.52(1) of the Act.
Next there is the question of solvency. The debtor is representing himself. On 25 May 2010, Registrar Pringle ordered the debtor to file and serve an affidavit about his financial position. The Registrar was plainly concerned to give the debtor every chance to show he was solvent. On 15 June 2010, the debtor sent a cheque which, had it not been rejected by the bank, would have cleared his debt, but the cheque bounced.
On 2 August 2010, the debtor filed an affidavit. He purported to set out his financial position in paragraphs 4 to 6. His income was detailed as between $1,200 and $2,500 per week. What was described as expenditure was between $780 and $1,797 a week and there were also what was called liabilities of between $741 and $765 per week.
In paragraphs 5 and 6 of the affidavit, Mr Benk set out what he felt were matters giving rise to damages in his favour from the creditor exceeding the sum of $340,000, but it should be noted that the claims indicated against the creditor are not particularised in any sufficient way to make them in any way clearly understandable or to be evaluated.
I agree with Registrar Pringle that the debtor’s affidavit and his oral assertion, apparently made to the Registrar, that he breaks about even, are not sufficient to establish that the debtor can pay his debts. His generalised and unspecific claims of loss caused to him by the actions of the creditor, albeit in large asserted amounts, are not sufficient cause not to make the sequestration order.
This brings us then to the matter that is at the heart of the proceeding, namely whether or not it was open for the bankruptcy notice properly to issue, given the addition of interest in the $2,000 figure. It is clear that interest can be included in a bankruptcy notice. It is also clear, as the creditor submits, that s.101(7) of the Magistrates Court Act 1989 (Vic) results in interest accruing on the judgment debt.
As I say, it is clear that interest can – but not must – be included in the petitioning creditor’s debt. Authorities that clearly establish this include Re Henry Wilson (1877) 3 VLR 96, Re Merrington (1929)

2 ABC 154 and Re Mullavey [1977] FCA 17. I will just refer briefly to two passages from that last judgment. On page 2 of the copy I have, which is part of a headnote, under the paragraph numbered 2, the following is noted:
“A bankruptcy notice which simply claims the amount of a judgment, without reference to any claim for statutory interest thereon, is a valid notice, and the creditor is free, either to refrain from claiming, or to make an accurately calculated and specified claim for, interest up to the date of the notice.”
And then paragraphs [28], [31] and [34] are also pertinent. Paragraph [28] of Sweeney J’s judgment reads:
“The second submission of the debtor was that the debtor did not commit an act of bankruptcy because the bankruptcy notice served on him was irregular, being likely to perplex the debtor, in that “it is not made clear whether interest is being claimed under judgment debt or alternatively whether the interest is in fact abandoned”.”
At paragraph [31], his Honour quoted the following:
“Re Lehmann; Ex parte Hasluck (1890) 7 Morr 18 was an appeal from the decision of the registrar by which he refused to issue a bankruptcy notice against the debtor. An application was made by the appellant to the registrar to issue a bankruptcy notice in respect of the sum of 14,896 pounds, claimed as being the final amount due in a final judgment. The registrar saw the judgment, which was for 13,796 pounds, ie, a sum of 1,100 pounds being added for interest, and inserted a judgment debt in the bankruptcy notice, excluding the interest. He said “he had never been asked but once before to include interest and had then refused to do so. A divisional court, constituted by Cave and A.L. Smith JJ, held that the appellant was entitled to have a bankruptcy notice issued for the amount due on the judgment which included interest due under 1 & 2 VICT, c 110, s.17. Cave J said: There might be a question whether the two amounts should not appear separately - in the notice - namely first the judgment and then the interest or whether it should be in the form of which it has been put, but that is a matter of detail. The creditor is entitled to have the amount of interest added to the judgment debt so that the debtor may be informed by the notice that he cannot comply with the notice without paying interest on the debt.”
Then there is the reference to the report which is Morell’s report, of course.
At paragraph [34], Sweeney J continued:
“Since Re Lehmann was decided in 1890, a judgment creditor has been free either to refrain from making any reference to interest in a bankruptcy notice or to include it in an accurately calculated claim for interest up to the date of the issue of the notice. In a multitude of cases, courts have acted upon bankruptcy notices in which no reference has been made to any claim for interest. The parties in the present case were asked at the hearing whether it had ever been decided that a bankruptcy notice, which made no reference to a claim for interest, was bad on that account. They were given a further fourteen days in which to make written submissions. No such case has been cited to me but, I pointed out, Clyne J clearly held the view that a bankruptcy notice making no claim for interest was a valid notice.”
I further note that the Thomson Reuters bankruptcy service, Australian Bankruptcy Practice Legal Online, appears to support the position for which the creditor contends.
So far, so good, but as Registrar Pringle pointed out, all the cases referred to involve debts that well exceeded the minimum, in other words, the equivalent of the $2,000 limit with which we are presently concerned. I also note, although it is in no way binding, that the ITSA Practice Statement Bankruptcy Notice, which was revised in August 2010, expresses a view that interest cannot be included to exceed the $2,000 figure.
It comes down to what s.41 of the Act means when it refers to, in section (1)(b), “2 or more final judgments or final orders.” The matter was, in my respectful view, determined by Lockhart J in Re Manion (1979) 23 ALR 270. It is a short passage which does not, it appears, to have been the subject of any subsequent consideration, and it is not cited in McQuade and Gronow’s work on the issue. I will read out first what is said in the headnote:
“(i). If it is the balance of a judgment that it claimed, that fact should be stated and the amounts paid or credited after judgment was signed should be specified. If interest is claimed, the notice should proceed to provide that interest is claimed at a particular rate from the date of judgment to the date specified in the notice. The total sum claimed to be due by the debtor to the petitioning creditor, inclusive of interest, should then be specified.
Notwithstanding that the bankruptcy notice was not in this form it is not such that the debtor could not readily understand it and not of such a kind as could reasonably mislead the debtor upon whom it was served.
(ii). Where by a statute a judgment debt carries interest, the judgment creditor may include in the bankruptcy notice a claim for interest.”
And then there are a number of authorities quoted. Then the headnote continues:
“Although interest is necessarily and inextricably attached to the judgment debt, it does not itself answer the description of the sum due by the debtor to the petitioning creditor under the final judgment.”
The passage in the text to which that headnote refers is at page 273 at line 40 where Lockhart J said, and I quote:
“Although interest is necessarily and inextricably attached to the judgment debt, in my opinion it does not itself answer the description of the sum due by the debtor to the petitioning creditor under the final judgment.”
Whether that remark was obiter or not, it certainly was a considered view and it binds me. Interest therefore does not answer the description of the sum due by the debtor to the petitioning creditor under the final judgment. In my view, it is clear that Registrar Pringle’s decision is correct.
It is well established that the effect of bankruptcy is a very serious matter. It is not appropriate to have what, in effect, would be a kind of process of creeping insolvency. In other words, a person who has a final judgment against them for the sum of, say, $1,500, would cross the threshold and be subject to a bankruptcy notice approximately three to four years later on current Victorian penalty interest rates. They could inadvertently commit an act of bankruptcy at a time after the standard three year bankruptcy period had expired.
It is surprising to me that this point has not arisen in terms, it would appear, before. The judgment of Lockhart J is clear, but the particular case itself did not turn on the point with which we are now concerned. But it is dead on point and it means that the application must be dismissed with costs.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Associate:

Date: 7 October 2010