Re Lance, P.J

[1991] FCA 184

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION	1
BANKRUPTCY DISTRICT OF THE	) No NB 781 of 1989
STATE OF NEW SOUTH WALES	1

Re: PETER JOHN LANCE

(A Bankrupt)

2 2 APR 1991

FEWMLQQIRTOF

EX TEMPORE JUCGMENT

-

Einfeld J Svdney 26 March 1991

The bankruptcy notice in this matter is dated 23 January 1991.

I am informed that it was served on 29 January. By affidavit

dated 8 February, filed with the Registrar on 12 February and therefore on the 14th day after the service of the bankruptcy notice, the debtor alleges that he has a counter claim, set off or cross demand against the judgment creditor for an amount which is described as "approximately $2 million". The affidavit establishes nothing about the basis of this counter claim, set off or cross demand, but merely makes a bland statement that such a claim exists.

the judgment.

The debtor applies for a declaration that the bankruptcy notice be stayed under section 41(7) of the Bankruptcy Act and seehs an adjournment to clarify and expand the basis of his counter-claim. The bankruptcy notice is based upon a judgment obtained in the Supreme Court of New South Wales on 7 December 1990 for $1,975,728.71. That sum includes $1532 for costs on

Section 41(7) says that where before the time for compliance with a bankruptcy notice has expired, a debtor has filed an affidavit "to the effect that he has such a counter claim, set off or cross demand as is referred to in paragraph 40(l) (g) ",

the time for compliance with the bankruptcy notice will be deemed to have been extended up to the time when the Court has determined whether it is satisfied that the debtor has such a cross claim.

The authorities have established, and it is now settled law, that in order to comply with the requirements of section 41(7), the debtor must make clear the legal basis which the cross claim is said to have. See, in this respect, the cases gathered by Burchett J in Pollnow v Oueensborouah Ptv Limited and another, unreported 19 October 1988 and some cases which I gathered in McGreaor v Clancv and Triado Ptv unreported 28 February 1991.

Those cases establish that on a proper interpretation of

section 41(7), the affidavit filed must set out or set up	factual material in sufficient detail to enable the Court to
satisfy itself that such a cross claim can legitimately be raised. If the affidavit on its face contains such material, there is an automatic stay of the bankruptcy notice. If it does not on its face contain such material, and the period required for compliance with the bankruptcy notice has expired, there is no way in which the notice at this stage of the proceedings can be stayed.
It is true that the authorities have included, in amelioration of their literal sternness, a concept that section 41(7) and any affidavit purporting to be filed under its terms should be given a "benevolent" construction, whatever that word might happen to mean. I would take it to mean that if the affidavit is deficient as to its form but demonstrably establishes that a legal and factual basis does exist for a cross claim, then the failure of the affidavit to be precise and legally sufficient in this regard should be overlooked.
In a case such as this, the degree of benevolence that should be extended must be limited by the fact that the bankruptcy notice is itself based upon a prior judgment of a court. It is not suggested here that the debtor had no prior knowledge of those proceedings before the judgment obtained in them. That means that he has known for some considerable time that he was being sued for an amount of just under $2 million and apparently took no steps in those proceedings to set up any cross claim or set off of the kind that he now seeks to
establish.
That is a factor which I should take into account in construing the affidavit that has purportedly been filed under section 41(7) here. It seems to me that the debtor had plenty of time before 8 February 1991 when his affidavit was sworn, to understand himself, at least sufficiently to obtain advice from a lawyer, the basis upon which any cross claim might be
set up. Yet the affidavit is silent on the facts.
There is annexed to the affidavit a lengthy statement from a person named Rigby, who was one of the debtor's CO-defendants in the Supreme Court proceedings. Counsel for the debtor concedes, and properly so, that that statement despite its length, does not establish a factual basis for the proposed cross claim.
There is therefore no way in which the debtor's affidavit can comply with the requirements of section 41(7) as explained by the cases. Even if it is given all the benevolence that can conceivably be extended in circumstances such as this, and even taking into account that the committing of an act of bankruptcy is a serious matter so that all conceivable means within the law of answering or defeating such an assertion should be made available, this affidavit could not reasonably be thought to establish any basis of the required kind at all.
For those reasons I reject the application for adjournment as ultimately the debtor would be unable in any event to achieve
the automatic stay of the bankruptcy notice to which the
subsection refers. The application for adjournment is
re£ used.
[ DISCUSSION ]
I declare that the affidavit of 8 February filed on 12 February by the debtor is not an affidavit attracting the provisions of section 41(7) and accordingly that the time for
compliance with the bankruptcy notice was not extended by the operation of that subsection.
[ DISCUSSION ]
I order that the debtor pay the creditor's costs.

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