Sommer v C Pty Ltd (No.2)
[2020] FCCA 1898
•14 July 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SOMMER v C PTY LTD (No.2) | [2020] FCCA 1898 |
| Catchwords: BANKRUPTCY – Determination of separate question – whether it is open to a creditor who has procured the issue and service of a bankruptcy notice to “withdraw” the bankruptcy notice or to waive compliance with its requirements after an application has been made for an order that it be set aside – question answered in the negative. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41, 43 Bankruptcy Regulations 1996 (Cth), reg.4.02 |
| Cases cited: Abignano v Wenkart [1998] FCA 1468 Australian Securities and Investments Commission v Forge [2003] FCAFC 274 Colin Richard Hubner v ANZ Banking Group Ltd [1998] FCA 1779 Maine v Esplins Solicitors [2010] FMCA 885 Maples v Siteberg Pty Ltd [2013] FMCA 123 Murphie v Vita Domus Pty Ltd [2019] FCCA 2063 O’Connor v SP Bray Ltd [1936] NSWStRp 14; (1936) 36 SR (NSW) 248 Rasile v Ground & Foundation Supports Pty Ltd [2003] FMCA 568 Re Conomo: A Debtor (1960) 18 ABC 174 Re Hastings; Ex parte Dearle (1884) 14 QBD 184 Re Hood; Ex parte English Scottish & Australian Bank Ltd [1971] ALR 151 Sommer v C Pty Ltd [2020] FCCA 1412 The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Thorne as trustee for Thorne Family Trust v Ozibar Pty Ltd as trustee for Ozibar Unit Trust [2017] FCCA 3273 Valamios v Demarco [2007] FMCA 298 Yong v Velik trading as SV Law [2017] FCCA 2842 Young v Cooke [2017] FCA 26 |
| Applicant: | MS SOMMER |
| Respondent: | C PTY LTD |
| File Number: | SYG 697 of 2020 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 10 July 2020 |
| Date of Last Submission: | 10 July 2020 |
| Delivered at: | Sydney |
| Delivered on: | 14 July 2020 |
REPRESENTATION
| Applicant in person, by video |
| Counsel for the Respondent: | Mr D Edney, by video |
| Solicitors for the Respondent: | ICL Lawyers |
ORDERS
The question whether the respondent, on whose application a bankruptcy notice has been issued, and who arranged to serve it on the applicant, can unilaterally “withdraw” it, or “waive” compliance with its requirements, after the applicant applied for an order that the bankruptcy notice be set aside, is answered in the negative.
The costs of the separate determination of the question referred to in order 1 are reserved.
IT IS NOTED that publication of this judgment under the pseudonym Sommer & C Pty Ltd (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 697 of 2020
| MS SOMMER |
Applicant
And
| C PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
In these reasons for judgment I consider as a separate question whether the respondent, on whose application a bankruptcy notice has been issued, and who arranged to serve it on the applicant, can unilaterally “withdraw” it, or “waive” compliance with its requirements, after the applicant applied for an order that the bankruptcy notice be set aside.
How question arises
On 5 June 2020 I published reasons for judgment (earlier reasons) on the basis of which I made an order dismissing an application for an order that the application brought in this Court to set aside a bankruptcy notice be transferred to the Family Court of Australia.[1] In the earlier reasons I set out the evidence on which the parties intend to rely in the application to set aside the bankruptcy notice, and I also set out the grounds on which I understood the applicant relies for seeking an order to set aside the bankruptcy notice.
[1] Sommer v C Pty Ltd [2020] FCCA 1412
Having dismissed the application for transfer, I set down for hearing on 10 July 2020 the application to set aside the bankruptcy notice, and directed the parties file and serve any further affidavits on which they intend to rely. The applicant complied with those orders by electronically lodging an affidavit on 18 June 2020.[2] The respondent, however, did not file any evidence in response to the applicant’s affidavit which, if the respondent intended to file any such evidence, it was required to do so by 3 July 2020.[3] Instead, on 3 July 2020 the respondent, through its solicitor, sent to my associate the following email:
[2] The applicant’s affidavit made on 18 June 2020 was accepted for filing on 19 June 2020
[3] The respondent did file an affidavit, but it related to the assessment of the respondent’s costs of successfully resisting the applicant’s application for transfer,
We wish to advise His Honour that on 18 June 2020 the Respondent withdrew Bankruptcy Notice # BN…54 which was issued on … 2020 and personally served upon the Applicant on 28 February 2020.
It follows that the hearing before His Honour on 10 July 2020 may not require a full day as presently set down.
We confirm that the Applicant is copied to this email.
At my direction, my associate sent an email to the parties on 3 July 2020 noting that I wished to enquire how the respondent withdrew the bankruptcy notice and, if it was done in a document, subject to the agreement of the parties, I would appreciate my chambers being provided with a copy of the document. By email sent on the same day the solicitor for the respondent said that the “withdrawal was effected by way of an email sent by the writer to the Applicant on 18 June 2020”. After seeking the applicant’s consent, the respondent’s solicitor provided to my chambers the email by which the respondent’s solicitor stated the respondent had withdrawn the bankruptcy notice. The email is as follows (Purported Withdrawal):
We hereby give you notice that Bankruptcy No. BN…54 issued on … 2020 and personally on you on 28 February 2020 is withdrawn by C Pty Ltd.
Again at my direction, on 6 July 2020 my associate sent to the parties the following email:
In addition to matters on which the parties intend to lead evidence and make submissions at the hearing on 10 July 2020, his Honour would appreciate hearing submissions from the parties on the following questions.
1.Is it open to a respondent to an application to set aside a bankruptcy notice to unilaterally withdraw the bankruptcy notice?
2.If so, on what basis is it open to such respondent to do so?
In response to the email, on 7 July 2020 the respondent filed a document titled “Respondent’s outline submissions as to ability to withdraw bankruptcy notice” prepared by its counsel; and on 8 July 2020, the applicant filed submissions on two matters, one of which related to whether the respondent could unilaterally withdraw a bankruptcy notice. In his written submissions counsel for the respondent submitted that a creditor on whose application a bankruptcy notice was issued can waive compliance with its requirements, and it can give effect to that waiver by “withdrawing” the bankruptcy notice. The applicant, on the other hand, submitted the respondent “does not have any grounds to withdraw the bankruptcy notice unilaterally unless it acknowledges the judgment debt is invalid”.[4] The reference to the “judgment debt is invalid” is a reference to the applicant’s submission that the bankruptcy notice should be set aside because the judgment debt on the basis of which it was issued does not in truth record a true debt because it is based on a costs certificate that is affected by jurisdictional error.[5]
[4] Applicant’s outline of submissions as to case to be heard on 10 July 2020, [9]
[5] Applicant’s outline of submissions as to case to be heard on 10 July 2020, [11]
When the matter came before me on 10 July 2020 I heard submissions about whether the respondent could unilaterally withdraw the bankruptcy notice. At the conclusion of those submissions counsel for the respondent said that if I were to decide the respondent could not “withdraw” the bankruptcy notice, the respondent would not be in a position to proceed with the hearing. I considered that the respondent’s claim that it could unilaterally withdraw the bankruptcy notice, even though it had been served on the applicant, raised a potentially difficult question that has not been the subject of any judicial determination. In those circumstances I suggested that the matter be adjourned for further directions, but that I reserve judgment on the question whether a creditor can unilaterally withdraw a bankruptcy notice, and give my judgment before the further directions hearing. The parties did not oppose my suggestion although the applicant, who is not legally represented, submitted that she had complied with my directions and was in a position to proceed with the hearing that had been set down on 10 July 2020. I indicated to the parties that this is a matter that may be relevant to the question of costs.
Meaning of “is withdrawn”
Before I proceed further, it will be necessary to say something about the meaning of “is withdrawn”. Neither counsel for the respondent, nor the applicant, made any submissions about the meaning of that expression. But given “withdraw” is an essential element of the question I consider in these reasons, and that the meaning of “is withdrawn” is the central expression contained in the Purported Withdrawal, it will be necessary to assign to “is withdrawn” a meaning or set of meanings it could reasonably be supposed the respondent intended to convey by its use of this expression in the Purported Withdrawal.
The ordinary meaning of “withdraw” is “to draw back or away; take back; remove”, or to “retract or recall”.[6] The word “withdraw” is commonly used in connection with the word “proceeding”. When so used, “withdraw” refers to the taking of such action as is necessary to remove a proceeding that is pending before a court.[7] This presupposes the existence of means by which that can be done, such as rules that permit the filing of a notice of discontinuance or, perhaps, by the person maintaining the proceeding consenting to an order dismissing it. It also presupposes that, when the withdrawal is effected, the proceeding is no more.
[6] Macquarie Dictionary online, accessed 10 July 2020
[7] See, for example, the judgment of Toohey J in Re Jelin Pty Ltd v Murdoch Pty Ltd [1984] FCA 142 where his Honour found that if, as one of the parties contended, there was an agreement that one of the parties would “withdraw its legal action”, the “expression “withdraw” should be given its ordinary meaning of discontinuance, without affecting the promisor's right to bring future proceedings if he chooses”.
Thus, by stating in the Purported Withdrawal that the bankruptcy notice “is withdrawn”, I proceed on the basis that the respondent intended to represent to the applicant that the bankruptcy notice is no longer in existence, or, at least, the bankruptcy notice no longer has any legal effect. That this is the meaning the respondent intended to give to “is withdrawn” as that expression appears in the Purported Withdrawal is confirmed by the submission counsel for the respondent made at the hearing on 10 July 2020; counsel submitted that, given the respondent’s having “withdrawn” the bankruptcy notice the subject of the proceeding before me, there was nothing left for the Court to do other than dismiss the application to set aside the bankruptcy notice. I will also take the respondent, however, to have intended to convey by the words “is withdrawn” two additional, but broader meanings; one is that the applicant does not have to comply with the requirements of the bankruptcy notice; the other is the respondent will not rely on the applicant’s not complying with the bankruptcy notice as an act of bankruptcy.
Statutory provisions
Whether or not a creditor can unilaterally “withdraw” a bankruptcy notice, in any of the three senses I have identified, depends on the proper construction of the relevant statutory provisions that relate to bankruptcy notices. The starting point is s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (Act), which provides that an act of bankruptcy occurs in the following circumstances:
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 fixed for compliance with the notice; or
(ii) where the notice was served elsewhere--within the time specified 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;
The act of bankruptcy provided for by s.40(1)(g) of the Act is defined by reference to “a bankruptcy notice under the Act”; and the act of bankruptcy consists of a failure to “comply with the requirements of the” bankruptcy notice within “the time fixed for compliance with the notice”. That directs attention to “a bankruptcy notice under the Act”; and this is provided for by s.41 of the Act. Subsection 41(1) provides that “an Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor”, among other things, “a final judgment or final order that (i) is of a kind described in paragraph 40(1)(g); and (ii) is for an amount of at least the statutory minimum”, that being $5,000.
Section 41 of the Act does not specify the contents and, therefore, the requirements of a bankruptcy notice. The contents of a bankruptcy notice are left to be prescribed by regulation. That is made clear by s.41(2) of the Act, which provides that the “notice must be in accordance with the form prescribed by the regulations”. A form has been prescribed by reg.4.02 of the Bankruptcy Regulations 1996 (Cth) (Regulations), which provides that for “the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed”. Thus, the requirements of a bankruptcy notice that is issued under s.41(1), and which under s.40(1)(g) must be complied with, are those that are contained in Form 1; and the central requirement is as follows (bankruptcy notice requirement):
You are required, within [ ] days after service on you of the Bankruptcy Notice, to either:
(a)pay to the creditor the amount of the debt claimed; or
(b)make arrangements to the creditor’s satisfaction for settlement of the debt.
Three observations may be made about these provisions. First, a valid bankruptcy notice is an instrument that is issued under the authority of s.41 of the Act; and an Official Receiver, not a creditor, issues it. Second, there is no provision that authorises an Official Receiver to withdraw or revoke or do anything in relation to a bankruptcy notice after he or she issues it. Third, once validly issued, and served on the debtor, the bankruptcy notice has effect according to its terms and the terms of s.40(1)(g) of the Act: the debtor must to do one of two things – pay the debt claimed, or “make arrangements to the creditor’s satisfaction for settlement of the debt” within the time fixed by the bankruptcy notice; and if the debtor fails to do either of these two things within that time, he or she will commit an act of bankruptcy, unless the debtor can satisfy a court exercising bankruptcy jurisdiction that he or she has a counter-claim, set-off, or cross demand of the sort identified in s.40(1)(g) of the Act; or unless the debtor obtains an order from a bankruptcy court setting aside the bankruptcy notice.
Has the bankruptcy notice been “withdrawn”?
What is the effect, then, of the respondent’s having conveyed to the applicant by the Purported Withdrawal that the bankruptcy notice “is withdrawn”? It cannot be that the respondent has drawn back, or taken back, or removed, or retracted, or recalled the bankruptcy notice. If any person would have the power to undo the issue of the bankruptcy notice that has been served on the applicant, it would be the issuer of the notice, the Official Receiver who issued it, not the respondent; but, as I have already observed, there is no provision that empowers an Official Receiver to withdraw a bankruptcy notice once it has been issued; and, in any event, the respondent does not suggest the Official Receiver who issued the bankruptcy notice has purported to undo the issue of the bankruptcy notice that has been served on the applicant. Thus, the respondent’s stating that the bankruptcy notice “is withdrawn” does not render the bankruptcy notice a nullity, or a thing that no longer has legal effect.
What if by the words “the bankruptcy notice is withdrawn” the respondent intended to represent to the applicant that she need not comply with the bankruptcy notice requirements, or that the respondent will not rely on the applicant’s failure to comply with the bankruptcy notice requirement? If the applicant were to act on such representation to her detriment, the respondent’s so representing might disentitle it from being able to rely on the applicant’s failure to comply with the bankruptcy notice requirements as an act of bankruptcy. But it would not prevent the applicant from committing an act of bankruptcy of the sort described in s.40(1)(g) of the Act if the applicant were not to comply with the bankruptcy notice requirements; and that is because the applicant would not have complied with its requirements. That means that any other creditor of the applicant as at the date of the act bankruptcy could present a petition for the making of a sequestration order against the applicant’s estate. As Dowsett J observed in Colin Richard Hubner v ANZ Banking Group Ltd:[8]
Where an act of bankruptcy has been committed, any creditor qualified to present a petition may rely upon it. See Re Barker; Ex parte Mitchell (1958) 18 ABC 195. Thus the significance of a failure to comply with a bankruptcy notice goes beyond the relationship between the judgment creditor and the judgment debtor.
[8] Colin Richard Hubner v ANZ Banking Group Ltd [1998] FCA 1779. See also Re Hastings; Ex parte Dearle (1884) 14 QBD 184, at page 192: “as soon as there is a good act of bankruptcy, any creditor who has a good petitioning creditor’s debt can present a petition founded on that act of bankruptcy”.
Counsel for the respondent did not submit there was an express power that permitted a creditor to unilaterally withdraw a bankruptcy notice after it has been served on a debtor. Counsel submitted, however, “there are numerous authorities that accept that a creditor can withdraw a bankruptcy notice”.[9] Counsel principally relied on the Full Federal Court’s judgment in Abignano v Wenkart.[10] The question in that case was whether the Full Federal Court should entertain an appeal from an order dismissing an application to set aside a bankruptcy notice because, on the day that order was made, the creditor procured another bankruptcy notice in relation to the same debt the subject of the first bankruptcy notice, and an application to set aside the second bankruptcy notice had also been dismissed by a different judge of the Federal Court. The Full Federal Court held it was open to the creditor to have procured the second bankruptcy notice and that, in those circumstances, the appellant’s prosecution of the appeal against the order setting aside the first bankruptcy notice was an abuse of process. Counsel for the respondent relied on the following passage from the judgment of the Full Federal Court (emphasis added):
We also consider that, where the same creditor issues two bankruptcy notices, one after the other, the creditor is required to make an election as to which bankruptcy notice it is with which the debtor is required to comply. The possibility of successive bankruptcy notices has been adverted to in several authorities including a judgment of the Court of Appeal in the United Kingdom in Re Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253. In that case, Sargant LJ, in agreeing with the judgment of Lord Hanworth MR, said at page 261:
If, while an earlier bankruptcy notice were still available for a petition, a second notice were given in bad faith or to embarrass the debtor, the Court could prevent oppression by declining to act. But in my view there has been nothing of this sort here. The first bankruptcy notice had been withdrawn, objections had been taken to the second notice which had not been conclusively satisfied, and I think that the third notice was served to escape from those objections, and to place the petitioning creditors in a stronger and less challengeable position than they had previously occupied. The failure to comply with this third notice was attributable not to the existence of the second notice, but to the entire inability of the debtors to pay the remainder of . . . their debt. The petitioning creditors have complied with the statutory formalities necessary to establish the insolvency of the debtors; and I see no sufficient reason for refusing the statutory consequences of the insolvency so established.
In our view, his Lordship in that passage recognised that it is open to a creditor to issue a fresh bankruptcy notice for the purpose of circumventing or overcoming a challenge or a possible challenge to an earlier notice. We consider that to have happened here.
[9] Respondent’s outline of submissions as to ability to withdraw bankruptcy notice, [2]
[10] Abignano v Wenkart [1998] FCA 1468
Counsel for the respondent made two submissions in relation to Abignano. First, he submitted that in finding it was permissible for a creditor to procure two bankruptcy notices, the Full Federal Court “accepted and applied the reasoning of” Re Fredericke and Whitworth Ex parte Hibbard[11] “that such a course of action is permissible where the creditor has “withdrawn” the earlier notice”.[12] Second, the Full Federal Court’s holding that a creditor who has procured the issue of two bankruptcy notices must elect “as to which bankruptcy notice it is with which the debtor is required to comply” necessarily implies that a creditor can unilaterally withdraw a bankruptcy notice.
[11] Re Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253
[12] Respondent’s outline of submissions as to ability to withdraw bankruptcy notice, [3]
The first of counsel’s two submissions invites analysis of the facts and decision in Re Fredericke. In that case the creditor issued three bankruptcy notices. The first bankruptcy notice “was ordered to be withdrawn” “owing to informality”.[13] On the same day a second bankruptcy notice was issued and later served on the debtors but, although the debtors paid some of the amount demanded by it, they did not comply with its requirements by paying the full amount it demanded. The creditor issued a third bankruptcy notice with whose requirements the debtors also did not comply. The creditor presented a petition based on the third bankruptcy notice. The debtors submitted that, having failed to comply with the second bankruptcy notice they had committed an act of bankruptcy, and this rendered them legally incapable of meeting the demand made by the third bankruptcy notice. That submission was rejected because it was held that the creditor issued the third bankruptcy notice to “escape” from objections that had been taken to the second bankruptcy notice, and the “first bankruptcy notice had been withdrawn”;[14] and that the debtors’ failure to comply with the third bankruptcy notice “was attributable not to the existence of the second notice, but to the entire inability of the debtors to pay the remainder of their debt”.
[13] Re Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253, at page 253
[14] ReFrederick and Whitworth Ex parte Hibbard [1927] 1 Ch 253, at pages 260-261
It is apparent that Re Fredericke did not concern the ability of a creditor to withdraw a bankruptcy notice. It concerned the ability of the creditor to rely on a bankruptcy notice in circumstances where it had issued a previous bankruptcy notice; and the assumption that a creditor could unilaterally “withdraw” the bankruptcy notice cannot be said to have formed an implied premise of anything that was decided in that case. It is true that the word “withdrawn” was used in relation to the first bankruptcy notice; but that is not a reference to a unilateral “withdrawal” by the creditor. It is a reference to an order that had been made that the first bankruptcy notice be withdrawn “for informality”.
Given that Re Frederick did not concern, and says nothing about, the ability of a creditor to unilaterally “withdraw” a bankruptcy notice, the Full Federal Court’s in Abignano relying on Re Fredericke cannot be taken to support the proposition that a creditor can unilaterally “withdraw” a bankruptcy notice. If Abignano is authority for any principle, it is that it is open to creditor who has already procured the issue of a bankruptcy notice with whose requirements the debtor has not complied to procure the issue of a second bankruptcy notice in relation to the same debt as the first bankruptcy notice for the purpose of circumventing or overcoming a challenge or possible challenge to the first bankruptcy notice; but if, without any abuse of process, the creditor procures a second bankruptcy notice with whose requirements a debtor also has not complied, the creditor must elect on which of the two failures the creditor will rely as the act of bankruptcy when it comes to the creditor (or any other creditor) presenting a petition for the making of a sequestration order.
I then turn to the second submission counsel for the respondent made in relation to Abignano. Counsel submitted that it was “an essential component” of the Full Federal Court’s reasoning in Abignano that a “creditor could elect to no longer require to comply with the bankruptcy notice serve upon them such that it forms part of the binding ratio of the judgment”. Counsel further submitted that the requirement that a creditor elect between which of two bankruptcy notices the creditor intends to rely necessarily implies an ability to withdraw. I do not accept that submission: it incorrectly equates the election to which the Full Federal Court referred to in Abignano with a unilateral right to withdraw a bankruptcy notice; and, in any event, it incorrectly identifies the matter about which the Full Federal Court held the creditor was required to make an election.
The notion of “election” arises where a person has available to him or her two inconsistent rights, and an election is made where the rights holder exercises one of the two inconsistent rights. Jordan CJ explained the nature of election in O’Connor v SP Bray Ltd:[15]
As a general rule, if a legal right has once accrued it continues to exist and may be enforced unless and until it is fully satisfied, provided that it does not become barred by a release under seal or by the expiration of some statutory period of limitation. A waiver of the right, in the sense of an intimation of an intention not to enforce it, is of itself inoperative . . . There are, however, special cases in which a right may become barred otherwise than by satisfaction, release, or lapse of time. Instances of this occur where something has happened which gives rise to the existence of two alternative rights. In such cases, if one of the alternative rights is fully satisfied, the other ceases to be available. This necessarily follows from the fact that the rights are alternative. Since the days of the Year Books it has been recognised that you cannot have the egg and the halfpenny too . . . . As a general a rule, in order that this result may be produced, one of the alternative rights must have been satisfied.
[15] O’Connor v SP Bray Ltd [1936] NSWStRp 14; (1936) 36 SR (NSW) 248, at page 257
The Full Federal Court in Abignano referred to the creditor having to make an election because there had accrued two acts of bankruptcy arising from the debtor having failed to comply with the requirements of two bankruptcy notices the creditor procured in circumstances where the Full Federal Court held it was open to the creditor to have procured the issue of the second bankruptcy notice. The election which the Full Federal Court required the creditor to make did not relate to the withdrawal of any bankruptcy notice; it related to the act of bankruptcy on which the creditor could rely at the time the creditor were to present a petition for the making of a sequestration order. The making of an election in those circumstances would be necessary because a bankruptcy court’s jurisdiction under s.43 of the Act to make a sequestration order depends on there being, among other things, “an act of bankruptcy”, that is, a single act of bankruptcy.
The necessity of having to make an election in these circumstances cannot be equated with the unilateral “withdrawal” of a bankruptcy notice. An election is something the law would have required the creditor in Abignano to make at the point at which the creditor would present a creditor’s petition; whereas the right asserted by the respondent in the case before me – to unilaterally withdraw a bankruptcy notice – is one predicated on a creditor having the discretion to withdraw the bankruptcy notice at its choosing. Further, given that the debtor in Abignano had failed to comply with the requirements of both bankruptcy notices, and the debtor, therefore, had committed two acts of bankruptcy, it is difficult to see how the creditor could have “waived” any of the acts of bankruptcy that had accrued by the debtor’s failure to comply with the requirements of the bankruptcy notices.
The question whether a creditor had the right to unilaterally withdraw a bankruptcy notice, therefore, did not arise in Abignano.
Waiver?
It has been said that “statutory conditions enacted solely for the benefit of individuals and not for the public can be waived”.[16] Given that counsel for the respondent submitted that by purporting to withdraw the bankruptcy notice it waived the necessity of the applicant having to comply with the requirements of the bankruptcy notice, it may be taken that counsel for the respondent intended to submit that a debtor’s committing an act of bankruptcy by not complying with the bankruptcy notice requirements is a statutory condition enacted solely for the benefit of individuals, and not for the public. To the extent counsel intended to so submit, however, I do not accept the submission.
[16] The Commonwealth of Australia v Verwayen (1990) 170 CLR 394, at page 409 (McHugh J)
The purposes of a creditor procuring and serving a bankruptcy notice must include as a purpose the invoking of the insolvency jurisdiction of a court of bankruptcy. That is implied from statements judges of the Federal Court have regularly made that it would be an abuse of process if “the purpose of a bankruptcy notice is to put pressure on a debtor to pay a debt, rather than to invoke the Court’s insolvency jurisdiction”.[17] Although initiated by a single creditor or joint creditors, a proceeding in insolvency is brought for the benefit of the general body of the debtor’s creditors.[18] Further, service of a bankruptcy notice on a debtor is also to be viewed as something that is done for the benefit of the debtor’s creditors existing at the time by which the requirements of the bankruptcy notice must be satisfied. That is apparent from the observations of Dowsett J in Colin Richard Hubner v ANZ Banking Group Ltd I have already set out that where “an act of bankruptcy has been committed, any creditor qualified to present a petition may rely upon it”, and that “the significance of a failure to comply with a bankruptcy notice goes beyond the relationship between the judgment creditor and the judgment debtor”.[19]
[17] Young v Cooke [2017] FCA 26, at [104]
[18] Re Conomo: A Debtor (1960) 18 ABC 174; Re Hood; Ex parte English Scottish & Australian Bank Ltd [1971] ALR 151
[19] Colin Richard Hubner v ANZ Banking Group Ltd [1998] FCA 1779. See also the judgment of Branson and Stone JJ in Australian Securities and Investments Commission v Forge [2003] FCAFC 274, at [4], where their Honours said that the “Act as a whole reflects legislative recognition of the public interest, as well as the private interests, in the management of personal insolvency.”
In his written submissions counsel for the respondent submitted that a “bankruptcy notice can be satisfied by making “arrangements to the creditor’s satisfaction”, whether or not actual payment is made”, and that it “is implicit in such a provision that the creditor can waive further compliance with the notice (that is, withdraw the notice)”.[20] This submission suffers from an incomplete quotation of the second of the two things a bankruptcy notice requires. The bankruptcy notice does not require the debtor to make “arrangements to the creditor’s satisfaction”. The second of the two requirements of a bankruptcy notice requires the debtor to make arrangements to the creditor’s satisfaction “for settlement of the debt”. That is, it is directed to the creditor and debtor entering into an agreement in relation to the debt within the time specified by the bankruptcy notice. The requirement does not prescribe the sort of agreement for settlement of the debt into which the creditor and debtor can enter; all that it requires is that the agreement in relation to the settlement of the debt be one with which the creditor is satisfied; that is, with one the creditor agrees.
[20] Respondent’s outline of submissions as to ability to withdraw bankruptcy notice, [1]
Counsel for the respondent does not articulate how the second requirement of a bankruptcy notice grounds a right to waive compliance with its requirement. It is difficult to see how it could. It requires the debtor to make arrangements to the creditor’s satisfaction “for settlement of the debt” within the period for compliance with the requirements of the bankruptcy notice. That affords no basis for permitting the debtor to make arrangements for settlement of the debt after the period of compliance with the requirements of the bankruptcy notice without, in the meantime, the debtor committing an act of bankruptcy.
Other cases
Counsel for the respondent submitted there are numerous authorities that “accept that a creditor can withdraw a bankruptcy notice”, and counsel has identified “a few examples” in a footnote.[21] In her written submissions the applicant has set out the facts of each case, and submitted that none of the cases is relevant.[22] I agree. None of authorities on which the respondent relies considered the question whether a creditor could unilaterally “withdraw” a bankruptcy notice; and to the extent the Court in any of the cases assumed, consciously or unconsciously, that it was open to the creditor to unilaterally withdraw a bankruptcy notice after it had been served on a debtor, that can have no weight on the question I determine in these reasons. I will, however, briefly set out the facts in each of the cases to show that they are immediately distinguishable from those before me:
a)In Yong v Velik the bankruptcy notice was set aside by consent after the creditor withdrew the bankruptcy notice.[23]
b)In Rasile v Ground & Foundation Supports Pty Ltd two bankruptcy notices were issued, one by an assignor, and one by an assignee. One was set aside by consent.[24]
c)In Thorne as trustee for Thorne Family Trust v Ozibar Pty Ltd as trustee for Ozibar Unit Trust [2017] FCCA 3273 there was an order setting aside the bankruptcy notice.[25]
d)In Maine v Esplins Solicitors there was an order setting aside an invalid bankruptcy notice.[26]
e)In Murphie v Vita Domus Pty Ltd there was an order by consent setting aside the bankruptcy notice.[27]
f)In Valamios v Demarco a sequestration order was made on the basis of a bankruptcy notice in circumstances where the debtor had offered to settle the matter which included a term that the creditor “withdraw” the bankruptcy notice, which offer was not accepted.[28]
g)In Maples v Siteberg Pty Ltd the first of two bankruptcy notices had by consent been withdrawn and ordered to be set aside.[29]
[21] Respondent’s outline of submissions as to ability to withdraw bankruptcy notice, [2]
[22] Applicant’s outline of submissions as to case to be heard on 10 July 2020, [10]
[23] Yong v Velik trading as SV Law [2017] FCCA 2842
[24] Rasile v Ground & Foundation Supports Pty Ltd [2003] FMCA 568
[25] Thorne as trustee for Thorne Family Trust v Ozibar Pty Ltd as trustee for Ozibar Unit Trust [2017] FCCA 3273
[26] Maine v Esplins Solicitors [2010] FMCA 885
[27] Murphie v Vita Domus Pty Ltd [2019] FCCA 2063
[28] Valamios v Demarco [2007] FMCA 298
[29] Maples v Siteberg Pty Ltd [2013] FMCA 123
Setting aside bankruptcy notice?
At the hearing on 10 July 2020 counsel for the respondent said he had instructions that the respondent would agree to an order setting aside the bankruptcy notice. It was apparent, however, that the respondent’s consent would be without any admission that the bankruptcy notice was liable to be set aside for any of the grounds on which the applicant relies.
Given the applicant’s position stated in her written submissions that the judgment debt on the basis of which the bankruptcy notice has been issued “is invalid”, it is not surprising the applicant did not consent to the Court making an order on the basis of no admissions by the respondent. The applicant desires to have litigated in this proceeding the question whether behind the judgment on the basis of which the bankruptcy notice has been issued there lies a true debt. The respondent has not submitted the applicant’s position is unreasonable.
Disposition
I propose to answer in the negative the question whether the respondent, on whose application a bankruptcy notice has been issued, and who arranged to serve it on the applicant, can unilaterally “withdraw” it, or “waive” compliance with its requirements, after the applicant applied for an order that the bankruptcy notice be set aside. I will make directions for the further conduct of the matter when the matter is next before me on 17 July 2020.
I will reserve the question of costs.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 14 July 2020
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