He v Shanahan as Liquidator of Eastern Source Construction Pty Ltd (in Liq)

The applicant, Mr. He, sought to set aside a bankruptcy notice issued by the respondent, Mr. Shanahan, in his capacity as liquidator of Eastern Source Construction Pty Ltd (in Liq). The dispute concerned whether Mr. He possessed a valid cross-claim or set-off that could defeat the bankruptcy notice, which was based on a judgment debt owed to the company. The matter was heard in the Federal Court of Australia.

The primary legal issue before the Court was whether Mr. He's claim against the company, which arose from his alleged payment of certain company debts and his subsequent subrogation to the rights of those creditors, constituted a "cross-claim" or "set-off" for the purposes of section 40(1)(g) of the *Bankruptcy Act 1966* (Cth). This section allows a debtor to apply to set aside a bankruptcy notice if they have a counter-claim, cross-claim, or right of set-off that equals or exceeds the amount of the debt specified in the notice.

Judge Altobelli reasoned that a subrogated right, while conferring a right to prove in the liquidation, does not automatically equate to a cross-claim or set-off in the context of section 40(1)(g). The Court distinguished between a direct claim against the creditor (which could be a set-off) and a claim derived through subrogation, which is a right to stand in the shoes of another creditor. The Court found that Mr. He's subrogated claim was not a claim that could be raised against the liquidator personally in a way that would defeat the bankruptcy notice.

The application to set aside the bankruptcy notice was dismissed.