Re Scerri

[1998] FCA 403

FEDERAL COURT OF AUSTRALIA

Bankruptcy - application to set aside bankruptcy notice - whether notice valid - whether notice was misleading - whether the stipulation in the notice requiring compliance within 14 days rather than 21 days was more than a formal defect - whether failure to attach a copy of the judgment relied upon to the notice was more than a formal defect.

Bankruptcy Act 1966 - ss 40, 41, 306

Re Howarth; Ex parte Mortgage Acceptance Nominees Limited (1993) 43 FCR 587 - dist.

JOHN ANTHONY SCERRI V RODNEY VINCENT CAHILL (IN THE MATTER OF JOHN ANTHONY SCERRI)

NG 7167  of   1998

JUDGE:        BEAUMONT J.
PLACE:        SYDNEY
DATE:          17 MARCH 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7167  of   1998

IN THE MATTER OF:		JOHN ANTHONY SCERRI
BETWEEN:		JOHN ANTHONY SCERRI APPLICANT
AND:		RODNEY VINCENT CAHILL RESPONDENT
JUDGE:	BEAUMONT J.
DATE OF ORDER:	17 MARCH 1998
WHERE MADE:	SYDNEY

ORDERS:

1. The bankruptcy notice be set aside.

1. The creditor to pay the debtor's costs of this application.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7167 of 1998

IN THE MATTER OF:	JOHN ANTHONY SCERRI
BETWEEN:	JOHN ANTHONY SCERRI APPLICANT
AND:	RODNEY VINCENT CAHILL RESPONDENT

JUDGE:	BEAUMONT J.
DATE:	17 MARCH 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

BEAUMONT J:

Before the Court is an application to set aside a bankruptcy notice.  The notice was, so far as presently relevant, in the following terms, that is to say, it required compliance in para 3 of the notice as follows:

“3.You are required, within 14 days after service on you of this Bankruptcy Notice:

(a)to pay the creditor the amount of the debt;  or

(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.]”

In para 2 of the bankruptcy notice, reference was made to the debt said to be due and payable to the creditor, and to the judgment relied upon, in the following terms:

“2.The creditor claims that the debt is due and payable by you.  A copy of the judgment or order relied upon by the creditor is attached.  At the time of applying for this Notice, execution of the judgment or order had not been stayed.”

On behalf of the debtor it is said that the notice is bad for three reasons.  First, it is said that para 3 of the notice requires the debtor to pay the creditor the amount of the debt or to make an arrangement as there specified within fourteen days after service instead of twenty one days (the prescribed period).  Secondly, it is said that the notice is misleading in that, in the text of para 3 of the notice, it is stated that the notice must be complied with within fourteen days after service, whereas in the note the number of days mentioned for this purpose is twenty one days.  Thirdly, it is said, and this is common ground, that no copy of the judgment relied upon was attached to the notice.

I will deal first with the first and second grounds. The relevant statutory framework is as follows. By s 40(1)(g) of the Bankruptcy Act 1966 (“the Act”) a debtor commits an act of bankruptcy -

“(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... a bankruptcy notice... and the debtor does not:

(i)... within the time specified in the notice;  or

(ii)... within the time fixed for the purpose by the order giving leave to effect the service,

comply with the requirements... or satisfy the Court that he or she has a counter-claim... being a counter-claim... that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.”

By s 41(1) of the Act, it is provided that:

“41.     (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 amount of at least $2,000.”

By s 41(2) of the Act, it is provided that:

“41.     (2)       The notice must be in accordance with the form prescribed by the regulations.”

By reg 4.02 of the Bankruptcy Regulations, it is provided that:

“(1) For the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed.”

By Form 1, the following form of notice, amongst other things, is prescribed:

“3.      You are required, within [insert number in accordance with the note to this paragraph] days after service on you of this Bankruptcy Notice:

(a)      to pay to the creditor the amount of the debt;  or

(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.]”

No order has been made in the present case specifying the time fixed for the purpose by an order giving leave to effect service out of Australia. It follows that the number of days to be inserted in para 3 of the present bankruptcy notice was twenty one. On behalf of the creditor this much is accepted. However, an application is now made on behalf of the creditor for an extension of time pursuant to the provisions of s 41(6A) of the Act. It is there provided:

“41.    (6A)     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.”

By s 41(6C) it is provided:

“41.     (6C)     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.”

On behalf of the creditor, reliance is placed upon the decision of Einfeld J in Re Howarth; Ex parte Mortgage Acceptance Nominees Limited (1993) 43 FCR 587. It was there held that a creditor may apply for an extension of time for a debtor to comply with a bankruptcy notice, and that the Court has power to extend time for compliance with a notice after time for compliance has expired.

Einfeld J went on in Howarth to refuse the extension application for discretionary reasons which need not be discussed here.  However, in my view, the decision in Howarth is distinguishable for present purposes.  What is sought here is to correct a fundamental defect in the form and requirements of the bankruptcy notice by substituting twenty one days instead of fourteen days as the time fixed for compliance.  There was no issue in Howarth as to the validity of the notice.  The application for extension of time was made by the creditor upon the assumption that the bankruptcy notice was itself valid.  That assumption cannot be made in the present case.

I note that in its terms s 41(6A) is expressed to be available only where the application is made before the expiration of time fixed for compliance. As I have said, the application under that provision was made on behalf of the creditor at today's hearing and this was well after the time fixed by the notice for compliance. The notice in the present case was served on 16 December 1997 by service upon the debtor's solicitor. It is not necessary for me to consider whether I should follow the reasoning in Howarth.  It is sufficient for me to say that, in my view, it is distinguishable for the reasons I have given.

On behalf of the creditor, it is further submitted that the provisions of s 306 of the Act should be invoked in the present context. However, in my view, the defect sought to be cured is by no means formal. It is, as I have said, fundamental. For that reason alone, I would set aside the bankruptcy notice. The debtor, as has been noted, also relies upon the third ground and that is that the copy of the judgment was not attached to the bankruptcy notice. The prescribed form of notice in Form 1 does, in para 2, stipulate that a copy of the judgment be attached. Again, that provision was not complied with. Again, I would regard this as more than a formal defect for the purposes of s 306.

In my opinion, the failures to comply with the provisions of the prescribed form in the two respects mentioned, that is to say, in respect of the requirements of para 2 and of para 3 of that form, were matters which went well beyond formal defects and they were capable of misleading a debtor.  It must follow, in my view, that the bankruptcy notice should be set aside.

ORDERS 
I order that the bankruptcy notice be set aside and I further order that the creditor pay the debtor's costs of this application.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont

Associate:

Dated:            17 March 1998

Solicitor for the Applicant:	D Knaggs
Counsel for the Respondent:	P Levor-Naylor
Solicitor for the Respondent:	Strain Kernan Cameron
Date of Hearing:	17 March 1998
Date of Judgment:	17 March 1998