Testart, in the matter of Testart v Testart
[2025] FedCFamC2G 572
•23 April 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Testart, in the matter of Testart v Testart [2025] FedCFamC2G 572
File number(s): MLG 1612 of 2024 Judgment of: JUDGE J YOUNG Date of judgment: 23 April 2025 Catchwords: BANKRUPTCY – Application for review of a registrar’s decision – decision of judicial registrar to sequester the estate of the respondent debtor – extensive litigation history – where respondent debtor claims interest calculated on the bankruptcy notice is misstated – found bankruptcy notice defective or irregular in form rather than substance and s 306(1) of the Bankruptcy Act applies – found non-compliance with the Bankruptcy Rules by the applicant creditor – found that the applicant creditor has not satisfied the requirements of s 52(1) of the Bankruptcy Act - sequestration order set aside. Legislation: Bankruptcy Act 1966 (Cth) ss 44(1)(a), 44(1)(b), 44(1)(c), 45(5), 45(6), 52, 306
Family Law Act 1975 (Cth) ss 87(11)(b), 90KA(b), 90UN(b), 117B(1)
Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 256
Taxation Administration Act1953 (Cth) ss 14ZZM, 14ZZR
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) rr 2.02(3), 4.02, 4.04, 4.05, 4.06
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) rr 1.07, 2.05(4), 15.13, 21.04
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 10.17
Oaths and Affirmations Act 2018 (Vic) ss 26, 27
Cases cited: Bechara v Bates [2021] FCAFC 34
Deputy Commissioner of Taxation v Zeqaj [2019] FCCA 2740
GE Commercial Australia Pty Ltd v Tinkler [2016] FCA 55
Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344
Kay v Coen [2016] FCCA 2118
Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71
Re Pollard; ex parte Lensing Management Co Pty Limited (1991) 33 FCR 284
Sandall v Porter (1966) 115 CLR 666
Stratton v Bowles (No 2) 2015 FCA 43
Division: Division 2 General Federal Law Number of paragraphs: 85 Date of hearing: 21 January 2025 Place: Melbourne Solicitor for the Applicant: Self-represented litigant Solicitor for the Respondent: Self-represented litigant ORDERS
MLG 1612 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF LISA JANE TESTART
BETWEEN: PIERRE HENRI ANTOINE MARIE TESTART
Applicant
AND: LISA JANE TESTART
Respondent
ORDER MADE BY:
JUDGE J YOUNG
DATE OF ORDER:
23 APRIL 2025
THE COURT ORDERS THAT:
1.The time for the Respondent to commence an application for review of the Registrar’s order made on 13 December 2024 is extended until 9 January 2025.
2.The amended creditor’s petition filed on 24 September 2024 is dismissed.
3.The sequestration order made on 13 December 2024 is set aside.
4.There be no order as to costs.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE J YOUNG:
Before the Court is an Application by the respondent debtor (Ms Testart) under s 256(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFCOA Act) seeking review of a decision of a Registrar of this Court made on 13 December 2024 (Review Application), which sequestered the estate of Ms Testart under s 52 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).
Rule 21.04 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Rules) provides that a review of the exercise of power by a Registrar under s 256 of the FCFCOA Act must proceed by way of a hearing de novo. Accordingly, the creditor’s petition is to be heard afresh.
For the reasons that follow, I am not satisfied that the applicant creditor (Mr Testart) has established proof of the matters stated in the creditor’s petition or service of the petition as is required by ss 52(1)(a) and (b) of the Bankruptcy Act. Accordingly, the creditor’s petition must be dismissed.
CONTEXT
Facts
A bankruptcy notice, BN 263741 (Bankruptcy Notice) was issued by the Official Receiver on 11 March 2024. On 13 May 2024, a Registrar of the Federal Court of Australia ordered that the time for compliance with the Bankruptcy Notice be extended to 20 May 2024.
The Bankruptcy Notice demands payment in the amount of $15,461.45, inclusive of interest. The Bankruptcy Notice was founded on the following costs orders made against Ms Testart in favour of Mr Testart as a result of family law proceedings in the Federal Circuit and Family Court of Australia:
(1)on 31 August 2023 in proceeding DGC1773/2019, Ms Testart was ordered to pay Mr Testart’s costs in the sum of $7,560 within 28 days; and
(2)on 18 December 2023 in proceeding NAA273/2023, Ms Testart was ordered to pay Mr Testart’s costs in the sum of $7,500 within 56 days (collectively, the Costs Orders).
Background to the debt
The applicant creditor, Mr Testart, and the respondent debtor, Ms Testart, were previously married. The parties married sometime in January 2010 and separated sometime in May 2019.
Mr Testart is a practicing barrister. Ms Testart commenced employment with Mr Testart as a personal assistant on 1 July 2009. Ms Testart contends that employment continued until 2017. Mr Testart denies this and says that Ms Testart’s employment ended “a few weeks later”, or by the time of their marriage in January 2010.
Since separation, there has been considerable litigation in multiple courts between the parties.
Relevant to the matter presently before the Court, on 6 June 2019, Ms Testart commenced family law property proceedings in the Federal Circuit and Family Court of Australia (Property Proceeding). At a final hearing on 6 August 2020, the Property Proceeding settled by consent.
On 9 February 2022, Ms Testart filed an Application in a Proceeding seeking, amongst other things, to be released from the Harman Undertaking in respect of documents filed in the Property Proceeding and for Mr Testart to be dealt with for criminal contempt.
On 20 May 2022, orders were made dismissing the Application in a Proceeding of 9 February 2022. As stated above, on 31 August 2023, Ms Testart was ordered to pay Mr Testart’s costs in the sum of $7,560 within 28 days, being Mr Testart’s party and party costs thrown away by reason of the Application in a Proceeding filed by Ms Testart on 9 February 2022 (First Costs Order).
On 28 September 2023, Ms Testart filed an appeal against the First Costs Order (Costs Order Appeal). The Costs Order Appeal was heard on 14 December 2023, and orders were made on 18 December 2023 dismissing the Costs Order Appeal and ordering Ms Testart to pay Mr Testart’s costs of the appeal in the sum of $7,500 within 56 days (Second Costs Order).
Neither the First Costs Order nor the Second Costs Order were satisfied.
Proceedings following the Bankruptcy Notice
As set out above, the Bankruptcy Notice was issued on 11 March 2024.
On 26 March 2024, Ms Testart filed an Application in the Federal Court of Australia to set aside the Bankruptcy Notice. Orders were made by a Registrar on 13 May 2024 dismissing the Application and ordering that the time for compliance with the Bankruptcy Notice be extended to 20 May 2024 (Federal Court Decision).
Current proceedings
Following the Federal Court Decision, Mr Testart filed a creditor’s petition on 4 June 2024 and lodged an amended creditor’s petition on 23 September 2024 which was accepted for filing on 24 September 2024 (Amended Petition). Orders were made on 23 September 2024 allowing for substituted service on Ms Testart (23 September Orders).
On 6 November 2024, Ms Testart filed a Notice opposing the Amended Petition on multiple bases.
As noted above, orders were made on 13 December 2024 sequestering the estate of Ms Testart.
The Review Application was filed on 9 January 2025 and was listed for hearing on 21 January 2025.
In this decision, the Amended Petition will be referred to as the Petition.
LEGAL PRINCIPLES REGARDING APPLICATIONS FOR REVIEW
As set out above, r 21.04 of the Rules provides that a review of the exercise of power by a Registrar under s 256 of the FCFCOA Act must proceed by way of a hearing de novo.
Accordingly, a review of a sequestration order in bankruptcy made by a registrar is to proceed by way of a hearing de novo, and the applicant creditor’s petition is to be considered afresh. However, this is subject to the following principles enunciated by the Full Court of the Federal Court in Bechara v Bates [2021] FCAFC 34 at [27] (Allsop CJ, Markovic and Colvin JJ):
(a)The application for review leads to a hearing de novo of the creditor’s petition.
(b)The hearing (or rehearing) of the creditor’s petition is not prosecuted by the debtor (applicant for review) but by the creditor in the proceeding in which the registrar’s order was made.
(c)The application for review is a demand that the claim for relief (the sequestration order) be heard by a judge.
(d)The onus is upon the creditor to prosecute its petition. The only onus of the debtor/bankrupt against whose estate a sequestration order has been made is to prove either solvency or any other sufficient cause under s.52(2) of the Bankruptcy Act 1966 (Cth).
(e)An appreciation of the above considerations makes it evident that summary or default judgment terminating an application for review is highly likely to be misconceived and founded upon a misconception that the applicant for review has an onus to prosecute an application or to show error in the approach of the registrar.
Relevant provisions of the Bankruptcy Act
Sections 52(1) and 52(2) of the Bankruptcy Act identify matters as to procedure and proof of a creditor’s petition, and provide:
(1) At the hearing of a creditor’s petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b)service of that petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing:
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(2)If the court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not be made;
it may dismiss the petition.
CONSIDERATION
Mr Testart seeks a sequestration order against Ms Testart. The act of bankruptcy relied upon is non-compliance with the Bankruptcy Notice. As also set out above, time for compliance with the Bankruptcy Notice was 20 May 2024.
Mr Testart contended that he had made out the proof of the matters contained in s 52(1) of the Bankruptcy Act, as further informed by rr 4.04 and 4.06 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (Bankruptcy Rules).
It is uncontested that the Costs Orders were made against Ms Testart, they are in excess of the statutory minimum as provided for in s 44(1)(a) of the Bankruptcy Act and that, at the time of hearing, they have not been satisfied.
Ms Testart opposes the Petition on the following grounds:
(1)there are substantive defects in a Bankruptcy Notice, namely that the amount of interest is incorrectly stated and the Bankruptcy Notice fails to include the statutory provisions relied upon. She therefore contends that the Bankruptcy Notice is invalid;
(2)the Bankruptcy Notice was not served in accordance with the Rules or the 23 September Orders;
(3)Mr Testart has not complied with rr 4.04, 4.05 and 4.06 of the Bankruptcy Rules;
(4)the Petition misstates the amount of interest owed to Mr Testart and therefore the affidavit verifying the Petition does not prove the actual debt claimed;
(5)Mr Testart did not file an affidavit of service of the Petition;
(6)there is a superannuation liability owed to Ms Testart by Mr Testart, the existence of which is relevant to solvency;
(7)Ms Testart’s pending Fair Work Proceeding in the Federal Court, which was commenced on 11 November 2021 against Mr Testart, is sufficient cause for the Court not to proceed with the bankruptcy proceeding;
(8)the Petition is an abuse of process. It is retaliatory against Ms Testart because she has asserted her legal rights and pursues a claim against Mr Testart in the Federal Court of Australia;
(9)concerns regarding the consequences of a sequestration order being made in that Ms Testart would have to file a statement of affairs, which Ms Testart submits will endanger her as her residential address will be made available to Mr Testart; and
(10)Ms Testart is able to pay her debt as and when they fall due.
At the hearing of the Review Application, whilst relying on all the grounds included in her material, Ms Testart’s submissions focused on grounds (1) – (7) and (9).
Orders in relation to service
As set out above, the 23 September Orders dispensed with personal service of the Petition and other documents on Ms Testart and provided for service by email and by prepaid post.
The 23 September Orders, relevantly, provided as follows:
…
2.Personal service of the creditor’s petition on the Respondent be dispensed with.
3. The creditor’s petition be served on the Respondent as follows:
(1)by sending the following documents (collectively, the Documents) via ordinary prepaid post to Respondent at PO Box 269, Churchill VIC 3842:
(a) a covering letter;
(b) a sealed copy of this order;
(c) a sealed copy of the creditor’s petition;
(d)a copy of the affidavit, or affidavits, verifying the creditor’s petition;
(e)a copy of the affidavit required by r 4.04(1)(a) of the Federal Circuit and Family Court (General Federal Law) (Bankruptcy) Rules 2021;
(f)a copy of the affidavit, or affidavits, of service of the bankruptcy notice; and
(g)a copy of any consent to act as trustee;
(2)by sending an email to the Respondent at [email protected], attaching a copy of the Documents in PDF; and
(3)the email in sub-paragraph 2(2) is to contain the following text in the body of the email:
EMAIL BY COURT ORDER – A Creditor’s Petition with file number MLG1612/2024 has been issued against Lisa Jane Testart and an order for service has been made. The petition is being heard on 7 November 2024 at 9:30am. The documents can be inspected by contacting the Registry at [email protected]. If Lisa Jane Testart fails to attend the hearing they may be made bankrupt in their absence. Instructions on how to appear at the Court hearing can be obtained by contacting [email protected]
4.Service of the creditor’s petition be deemed to be effected on the Respondent on 11 October 2024 upon condition that the events referred to in paragraph 2 occur by 27 September 2024.
…
Statutory conditions on which a creditor may petition
On the evidence before the Court, I am satisfied that the debt owed by Ms Testart is:
(1)in excess of $10,000 (being the statutory minimum) (s 44(1)(a) of the Bankruptcy Act); and
(2)immediately owed and payable by Ms Testart to Mr Testart (s 44(1)(b) of the Bankruptcy Act).
Grounds of Opposition
Ground 1 – Defects in the Bankruptcy Notice
Are there defects in the Bankruptcy Notice?
It is uncontested that Ms Testart did not comply with the Bankruptcy Notice by 20 May 2024 and that the Petition was presented within six months of that date. However, Ms Testart contends that the Bankruptcy Notice incorrectly states the amount of interest, calculates interest inconsistently and fails to identify the statutory provisions upon which the interest is being claimed. Ms Testart submits that these defects are substantive and likely to mislead and accordingly, the Bankruptcy Notice must be dismissed. Accordingly, as I understand it, Ms Testart submits, in effect, that there is no act of bankruptcy for the purposes of s 44(1)(c) of the Bankruptcy Act.
Mr Testart relied upon the Federal Court Decision and submits that the validity of the Bankruptcy Notice has been determined. In those circumstances, he submits that Ms Testart is estopped from relitigating those matters. However, Mr Testart did not further articulate how that estoppel was established nor did he rely upon, or direct the Court’s attention to, any relevant case law. Further, Mr Testart submits that any defect in the Bankruptcy Notice was a formal defect or an irregularity and, pursuant to s 306 of the Bankruptcy Act, did not invalidate the proceedings. He submitted that none of defects identified by Ms Testart were substantive or capable of misleading her.
The Schedule of Post-Judgment Interest Calculation contained in the Bankruptcy Notice provides as follows:
…
claim/s that you owe the following debt
1. Amount as per the accompanying final judgment/s or final order/s (note A) $15,060.00 2. Add legal costs (note B) $0.00 3. Add interest accrued since date of judgment/s or order/s (note C) $401.45 4. Sub total (1 + 2 + 3) $15,461.45 5. Less payments made and/or credit allowed since judgment/s or order/s $0.00 6. TOTAL DEBT AMOUNT (4 – 5) $15,461.45
A debtor may dispute the validity of the bankruptcy notice on the hearing of a petition. As Gleeson J said in GE Commercial Australia Pty Ltd v Tinkler [2016] FCA 55 at [5]:
A bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act: Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71 at 79; see also The Australian Steel Company (Operations) Pty Ltd v Lewis [2000] FCA 1915; (2000) 109 FCR 33 at [22] to [25]. A debtor may dispute the validity of the bankruptcy notice on the hearing of the creditor’s petition: Re Pollard; ex parte Lensing Management Co Pty Limited (1991) 33 FCR 284 (“Re Pollard”). Where the defect in the bankruptcy notice is other than a formal one, the notice itself is defective and failure to comply with it does not constitute an act of bankruptcy: Re Pollard at 286.
However, in circumstances where a debtor has sought that a bankruptcy notice be set aside and that has been determined against the debtor, that may be sufficient proof of the validity of the bankruptcy notice. In Re Pollard; ex parte Lensing Management Co Pty Limited (1991) 33 FCR 284 at [20] Gummow J said:
If the application to set aside the bankruptcy notice had been contested and had been determined by the Court against the debtor, and on the hearing of the petition the debtor sought to reagitate the validity of the bankruptcy notice by relying upon the same or indistinguishable arguments, then the Court might well hold that the earlier adverse decision provided sufficient proof of the validity of the bankruptcy notice and thus of the commission of the available act of bankruptcy. But that is not this case.
In his submissions, Mr Testart submits that the application to set aside the Bankruptcy Notice “made no mention whatsoever of any alleged defects in the calculation of interest.” In light of that submission, Mr Testart’s submission that Ms Testart ought be estopped from challenging the Bankruptcy Notice on that basis is unable to be sustained. Further, neither the Application to set aside the Bankruptcy Notice nor the Federal Court Decision are in evidence before the Court. Accordingly, the grounds upon which the Bankruptcy Notice was sought to be set aside, and the matters litigated in support of that application are not before the Court. Accordingly, on the evidence currently before the Court, I am unable to conclude that the arguments sought to be relied upon by Ms Testart to invalidate the Bankruptcy Notice were considered and determined in the Federal Court Decision.
I accept Ms Testart’s submission that the interest calculations contained in the Bankruptcy Notice are incorrect. Under cross-examination Mr Testart conceded that the amount included in the Bankruptcy Notice in respect of the Second Costs Order was calculated from 12 February 2024 when it ought have been calculated from 13 February 2024 (amounting to an overcalculation of $2.12) and also said that interest was only calculated until 7 March 2024, rather than 11 March 2024, being the date of the Bankruptcy Notice. Accordingly, whilst Mr Testart conceded that the interest calculation was incorrect, he says that the interest claimed on the First Costs Order was less than the amount in fact due.
I reject the submission that there is any inconsistency in the interest calculations included in the Bankruptcy Notice. The First Costs Order was made on 31 August 2023 and provided as follows:
1.Within 28 days of the date of this Order, the Applicant Wife pay the Respondent Husband’s costs in the sum of $7,560, being the Husband’s party and party costs thrown away by reason of the Applicant in a Proceeding filed by the wife on 9 February 2022.
The Second Costs Order was made 18 December 2023 and provided as follows:
1. The Amended Notice of Appeal filed 27 November 2023 is dismissed.
2.The appellant is to pay the respondent’s costs in the sum of $7,500 within 56 days.
Section 117B(1) of the Family Law Act 1975 (Cth) (Family Law Act) provides as follows:
(1)Subject to any order made by the court under subsection (2), where, in proceedings under this Act, a court makes an order for the payment of money (other than an order for the payment by way of maintenance of a periodic sum), interest is payable, at the rate prescribed by the applicable Rules of Court, from:
(a) the date on which the order is made; or
(b) the date on which the order takes effect;
whichever is later, on so much of the money as if from time to time unpaid.
Accordingly, the Costs Orders were made on different dates and had different periods within which they were to be satisfied. As such, pursuant to the Costs Orders and s 117B(1) of the Family Law Act, the periods in respect of which post-judgment interest arose are necessarily different. As such, no inconsistency as alleged arises.
As to the submission that the relevant statutory provision under which the post-judgment interest is being claimed is not included in the Bankruptcy Notice, I reject Mr Testart’s submission that the inclusion in the Bankruptcy Notice of the reference to r 10.17 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (Family Law Rules) was a sufficient reference to the statutory provision under which the post-judgment interest is claimed, including because the text of r 10.17 includes a reference (hyperlinked online) to s 117B(1) of the Family Law Act. Rule 10.17 sets out the rate at which interest is payable; it does not provide for post-judgment interest to be paid. In the present circumstances, the relevant statutory provision is s 117B(1) of the Family Law Act. Further, under cross-examination Mr Testart conceded that r 10.17 did not provide for post-judgment interest to be paid; rather, it set out the rate at which interest is payable. In addition, under cross-examination Mr Testart was unable to identify which of the provisions of the Family Law Act referred to in Rule 10.17 (being, ss 87(11)(b), 90KA(b), 90UN(b) and 117B(1)), gave rise to Ms Testart’s obligation to pay interest on the Costs Orders and conceded that the Bankruptcy Notice did not refer to s 117B(1) of the Family Law Act.
Accordingly, I find that the Bankruptcy Notice incorrectly calculates the interest to be paid by Ms Testart on the First Costs Order and does not identify the relevant statutory provision upon which the post-judgment interest is claimed. As such, I accept that the Bankruptcy Notice is defective or irregular.
Are the errors in the Bankruptcy Notice formal defects or an irregularity?
Section 306(1) of the Bankruptcy Act provides as follows:
Formal defect not to invalidate proceedings
(1)Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
(2)A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith.
In Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at [15] – [16] Mason CJ, Wilson, Brennan and Gaudron JJ said:
The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice: James v. Federal Commissioner of Taxation (1955) 93 CLR 631, at p 644; Pillai, at p 1135. In such cases the notice is a nullity whether or not the debtor in fact is misled: In re A Judgment Debtor, 530 of 1908 (1908) 2 KB 474, at p 481.
If the amount specified in a bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of s.41(2)(a)(i) - the only requirements presently relevant - are met. Understatement of the amount due, whether it be an understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice
As set out above, Mr Testart submits that as a consequence of the failure to calculate interest for the period 8 – 11 March 2024 the interest claimed in the Bankruptcy Notice is understated, notwithstanding that interest was calculated from 12 February 2024 rather than 13 February 2024. I accept that submission. Further, I do not understand this to be contested by Ms Testart who submits that the interest claimed is “misstated” rather than overstated. Accordingly, ss 45(5) and (6) of the Bankruptcy Act are not presently relevant.
I do not consider that either the understatement of interest or the failure to refer expressly to s 117B(1) of the Family Law Act in the Bankruptcy Notice is objectively capable of misleading Ms Testart as to what is necessary for compliance with the Bankruptcy Notice. I consider that the Bankruptcy Notice makes clear what Ms Testart was required to do to comply with it, that is, pay the judgment debts and post-judgment interest. That the interest is undercalculated could not reasonably have misled Ms Testart. Further, in Kay v Coen [2016] FCCA 2118 at [5], Street J said “… the correct completion of the form of the bankruptcy notice as to interest was not an essential requirement.” Accordingly, I consider the Bankruptcy Notice to be defective or irregular in form rather than substance and therefore falls within s 306(1) of the Bankruptcy Act. Ms Testart led no evidence of actual injustice. I therefore consider that s 306(1) applies.
Ground 2 and 3 – Non-compliance with the Bankruptcy Rules and 23 September Orders
It is convenient to address Grounds 2 and 3 together.
The 23 September Orders required, amongst other things, that Ms Testart be served with a copy of the affidavit required by r 4.04(1)(a) of the Bankruptcy Rules and a copy of the affidavit, or affidavits, of service of the Bankruptcy Notice.
Firstly, Ms Testart contends that the Petition is not accompanied by an affidavit of service of the Bankruptcy Notice as required by r 4.04(1)(b) and the 23 September Orders. Secondly, Ms Testart contends that the affidavit verifying the Petition does not, on page three, include a date on which Mr Testart verifies the Petition. Thirdly, Ms Testart contends that the jurat of the affidavit verifying the Petition does not comply with r 15.13 of the Rules in that it does not:
(a)include the name of the deponent;
(b)identify whether the affidavit is sworn or affirmed; or
(c)include the full name and capacity of the person before whom the affidavit is made.
Ms Testart also contends that the affidavit verifying the Petition does not comply with s 27(1)(c) of the Oaths and Affirmations Act 2018 (Vic) (Oaths Act) because the affidavit taker has not included their full name, address and capacity.
Fourthly, Ms Testart contends that the jurat of the affidavit of service of the Petition also does not comply with r 15.13 of the Rules and ss 26 and 27 of the Oaths Act for the same reasons as set out above at paragraphs [51] - [52]. In addition, Ms Testart contends that the annexure certificate to the affidavit verifying the Petition does not comply with s 26(2)(b) of the Oaths Act because the affidavit taker has not included their full name, address and capacity.
As to rr 4.05 and 4.06 of the Bankruptcy Rules, Ms Testart contends that the Petition was not accompanied by an affidavit of service of the Bankruptcy Notice as required under r 4.05(c) and accordingly, Mr Testart cannot have complied with rr 4.06(2)(a) and (b).
Rule 4.02, 4.04, 4.05 and 4.06 of the Bankruptcy Rules provide as follows:
4.02 Requirements for creditor’s petition and supporting affidavit
(1)For subsection 47(1A) of the Bankruptcy Act, a creditor’s petition must be in accordance with Form B6.
(2)The affidavit (the verifying affidavit) verifying the petition required by subsection 47(1) of the Bankruptcy Act must:
(a) be included in the petition in accordance with Form B6; or
(b) accompany the petition.
(3)The petition must also be accompanied by any affidavits relating to the petition required by rule 4.04.
(4)Unless the petition is faxed, or sent by electronic communication, to a Registry for filing, the petition must also be accompanied by sufficient copies of the petition for service and proof of service.
(5)If the petition is accompanied by the verifying affidavit in accordance with paragraph (2)(b), a copy of the petition must be attached to the verifying affidavit.
4.04Creditor’s petition founded on failure to comply with bankruptcy notice etc.
(1)If a creditor's petition is founded on an act of bankruptcy specified in paragraph 40(1)(g) of the Bankruptcy Act, the petition must also be accompanied by:
(a) an affidavit stating:
(i)that the records of the Court and the records of the Federal Court have been searched and no application in relation to the bankruptcy notice has been made; or
(ii)that an application was made in the Court or in the Federal Court (as the case may be) for an order setting aside the relevant bankruptcy notice and the application has been finally decided; or
(iii)that an application was made in the Court or in the Federal Court (as the case may be) for an order extending the time for compliance with the bankruptcy notice and the application has been finally decided; and
(b) an affidavit of service of the relevant bankruptcy notice.
(2)If an affidavit required by paragraph (1)(a) states the matters referred to in subparagraph (1)(a)(i), a copy of the search must be attached to the affidavit.
(3)If an affidavit required by paragraph (1)(a) states that an application referred to in subparagraph (1)(a)(ii) or (iii) was made, a copy of the order finally deciding the application must be attached to the affidavit.
(4)A copy of the bankruptcy notice must be attached to the affidavit required by paragraph (1)(b).
4.05 Documents to be served
Unless the Court otherwise orders, at least 5 days before the date fixed for the hearing of a creditor's petition, the applicant creditor must serve on the respondent debtor:
(a) the creditor’s petition; and
(b)a copy of the affidavit, or affidavits, verifying the petition required by subsection 47(1) of the Bankruptcy Act; and
(c)if applicable, a copy of the affidavits relating to the petition required by rule 4.04; and
(d)a copy of any consent to act as trustee of the debtor's estate filed under section 156A of the Bankruptcy Act.
4.06 Additional affidavits to be filed before hearing
(1)Before the hearing of a creditor's petition, the applicant creditor must comply with this rule.
(2)The applicant creditor must file an affidavit that:
(a)states that the documents required to be served under rule 4.05 have been served, and when and how they were served; and
(b)has attached to it a copy of the documents that were served and proof of service in relation to the documents.
(3)The applicant creditor must file an affidavit, of a person who has, no earlier than the day before the hearing date for the petition, searched, or caused a search to be made, in the National Personal Insolvency Index, that:
(a)sets out the details of any references in the Index to the debtor; and
(b)states that there were no details of a debt agreement, about the debt on which the applicant creditor relies, in the Index:
(i) on the day when the petition was presented; and
(ii) on the day when the search was made; and
(c) has attached to it a copy of the relevant extract of the Index.
(4)The applicant creditor must file an affidavit of a person who knows the relevant facts that:
(a)was sworn as soon as practicable before the hearing date for the petition; and
(b)states that each debt on which the applicant creditor relies is still owing.
(5)If a debt stated in the petition is an amount payable to the applicant creditor under a judgment of a court that ordered the amount to be paid into the court, the applicant creditor must file an affidavit:
(a)of a person who has, not earlier than the day before the hearing date for the petition, searched in the proper office of the court; and
(b)that states whether the amount of the debt (or part of that amount) has been paid as ordered.
Rule 15.13 of the Rules provides as follows:
Making an affidavit
(1) The person making the affidavit must sign each page of the affidavit.
Note:For the persons before whom an affidavit may be made, see section 195 of the Act.
(2)The affidavit must:
(a) contain a jurat including:
(i) the full name of the person making the affidavit; and
(ii) whether the affidavit is sworn or affirmed; and
(iii) the day and place the affidavit is made; and
(iv)the full name and capacity of the person before whom the affidavit is made; and
(b)be signed by the person making the affidavit in the presence of the person before whom it is made; and
(c)then be signed by the person before whom it is made.
Note:A jurat is a clause placed at the end of an affidavit stating the time, place and person before whom the affidavit is made.
(3)Any interlineation, erasure or other alteration in the affidavit must be initialled by the person making the affidavit and the person before whom the affidavit is made.
I address each of Ms Testart’s submissions in turn.
I do not understand it to be contested that the Petition was not accompanied by an affidavit of service of the Bankruptcy Notice. Paragraph [4] of the affidavit verifying the Petition (Verifying Affidavit) states as follows:
I served the said bankruptcy notice, number 263741, on the respondent on 11 March 2024. Exhibited to this affidavit and marked PHT 2 is a true copy of the email sending the said bankruptcy notice by way of service, together with the said bankruptcy notice and the orders supporting it.
Mr Testart relies upon paragraph [4] of the Verifying Affidavit and submits that in these circumstances r 4.05(c) of the Bankruptcy Rules has been complied with and, in the alternative, that compliance with the Bankruptcy Rules ought be dispensed with in so far as he has not complied with them. I reject the submission that r 4.05(c) has been complied with. Rule 4.02(3) requires that the petition be accompanied by any affidavits relating to the petition required by r 4.04. Rule 4.04(1)(b) and the 23 September Orders required an affidavit of service on Ms Testart of the Bankruptcy Notice be filed. No such affidavit has been filed at any stage and no such affidavit was attached to the Petition. Paragraph [4] of the Verifying Affidavit does not satisfy this requirement. It is not an affidavit of service of the Bankruptcy Notice nor is the Bankruptcy Notice attached to the email relied upon at annexure PHT-2. I note, however, that the Bankruptcy Notice is attached as an unmarked document at page seven of the Petition. Accordingly, it follows that Ms Testart’s contention that Mr Testart has failed to comply with r 4.05(c) of the Bankruptcy Rules, the 23 September Orders and cannot therefore have complied with r 4.06(2)(a) and (b) of the Bankruptcy Rules, must also be accepted.
Rule 1.07 of the Rules allows the Court in the interests of justice to dispense with compliance or full compliance with any of the Rules. Ms Testart sought to have the Bankruptcy Notice set aside in the Federal Court Decision and was granted an extension of time to comply with it. As such, Ms Testart has clearly had adequate notice of the Bankruptcy Notice and absent other non-compliance with the Rules I would be inclined to dispense with compliance in relation to r 4.04(1)(b). However, I do not consider that it is in the interests of justice to dispense with compliance with r 4.04(1)(b) in the present circumstances. For the reasons set out below, Mr Testart has also failed to comply with the Rules in relation to the Verifying Affidavit, which I consider to be of particular significance. As a result of this cumulative non-compliance I do not consider it to be in the interests of justice to waive compliance with the Rules. Bankruptcy proceedings are particularly serious and have potentially extremely significant consequences for the respondent debtor. In my view, strict compliance with the Rules and the Bankruptcy Rules is necessary and I consider it clear from Mr Testart’s material that he has had scant regard to compliance with the rules of this Court as they apply to this proceeding.
As submitted by Ms Testart, page three of the Verifying Affidavit does not include the date on which Mr Testart verifies the Petition. Further, the jurat of the Verifying Affidavit does not include the name of the deponent or the full name of the person before whom the affidavit is made or indicate whether the affidavit is affirmed or sworn. Accordingly, the affidavit does not comply with r 15.13 of the Rules.
As to Ms Testart’s submissions regarding the affidavit of service of the Petition, it is also the case that the affidavit of service of the Petition does not comply with r 15.13 of the Rules. The jurat of that affidavit does not contain the name of the person making the affidavit or the name of the person before whom the affidavit is made.
Mr Testart submits that these are “insignificant technical breaches” and it is clear that the Verifying Affidavit was duly sworn. I reject those submissions. Section 52(1) of the Bankruptcy Act provides that at the hearing of the Petition the Court requires proof of:
(a)the matters stated in the Petition;
(b)service of the Petition; and
(c)the fact that the debt is still owing,
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
Section 52(1)(a) provides that the Court may accept the affidavit verifying the Petition as proof of the matters stated in the Petition for the purposes of s 52(1)(a). Accordingly, the affidavit verifying the Petition is of considerable significance and in circumstances where that affidavit has not been executed in compliance with the Rules, I do not consider that the Court can be satisfied of the proof of the matters stated therein. Further, s 52(1)(b) requires that the Court be satisfied of service of the Petition. Again, in circumstance where that affidavit does not comply with the Rules, I do not consider that the Court can be so satisfied.
As such, I do not consider that Mr Testart has satisfied the requirements of s 52(1) and accordingly I refuse to make an order sequestrating Ms Testart’s estate.
For the above reasons it is not necessary that I consider Ms Testart’s submissions in relation to the Oaths Act.
For completeness, I note that Mr Testart did not contend that any of the above omissions were defects or irregularities under s 306 of the Bankruptcy Act.
In light of the above, it is also not strictly necessary that I consider the remaining grounds advanced by Ms Testart in her material and, indeed, she did not address the Court as to many of them. However, given the time at hearing devoted to some of these grounds and as a trial judge, I consider it appropriate that I address the matters contained in Ms Testart’s submissions filed on 6 December 2024 which were pressed at hearing. Those matters were Ground 4, Ground 6, Ground 7 and Ground 10.
Ground 4 – Misstatement of debt
By Ground 4 Ms Testart submits that the Petition misstates the amount of interest owed to Mr Testart and therefore the Verifying Affidavit does not prove the actual debt claimed. I have at paragraphs [45] – [48] above addressed the issue of the miscalculation of interest and the operation of s 306 of the Bankruptcy Act and refer to and repeat those comments here.
Ground 6 – Unpaid Superannuation Contributions
Ms Testart submits and the evidence before the Court establishes, that the Australian Tax Office (ATO) have determined that Mr Testart did not make the minimum superannuation guarantee payment in respect of Ms Testart’s employment with him for the period 30 September 2009 until 30 June 2017. As at 1 September 2021 the ATO assessed the unpaid superannuation guarantee amount to be $99,750.76 (Unpaid Superannuation Contributions) with penalties of $149,626.08. Ms Testart’s evidence is that as at 13 November 2024 the amount of Unpaid Superannuation Contributions was $117,324.69.
As already set out, Mr Testart denies that Ms Testart was employed by him for this period. Mr Testart contends, and the evidence before the Court establishes, that Mr Testart has sought review of the ATO’s determination in the Administrative Review Tribunal.
It is not entirely clear how Ms Testart relies upon the Unpaid Superannuation Contributions. However, as I understand it, she variously submits that:
(a)the Unpaid Superannuation Contributions establish that the Costs Orders are not still owing and s 52(1)(c) of the Bankruptcy Act is therefore not satisfied;
(b)the Unpaid Superannuation Contributions establish a debt owed to Ms Testart by Mr Testart;
(c)the Unpaid Superannuation Contributions render Ms Testart solvent;
(d)the Unpaid Superannuation Contributions demonstrate that Mr Testart is indebted to Ms Testart, fundamentally undermining the validity of Mr Testart’s claim; and
(e)the Unpaid Superannuation Contributions establish a cross-claim against Mr Testart.
I address each of these submissions in order.
Firstly, I reject the submission that the Unpaid Superannuation Contributions establish that the Costs Orders are not still owing. It is uncontested that the Costs Orders were made following contested hearings and Ms Testart confirmed at the hearing that the Costs Orders have not been satisfied. Accordingly, the judgement debt is still owing and I can see no basis upon which the Court ought go behind those judgments on the basis of another liability.
As to the matters raised in (b) – (d) inclusive above, these submissions appear premised on the assumption that the Unpaid Superannuation Contributions are a debt owed to Ms Testart in her personal capacity and accessible by her. In her affidavit material Ms Testart asserts that if the Unpaid Superannuation Contributions were paid, she “would have sufficient funds to cover any debts and financial obligations, notwithstanding it would be paid into a superannuation fund.” I reject that assumption and that evidence. Firstly, superannuation guarantee contributions are payable by an employer, on behalf of an employee, to an eligible superannuation fund. They are not paid to the employee or, in the ordinary course, accessible by the employee. Further, even if, as asserted by Ms Testart, ss 14ZZM and 14ZZR of the Taxation Administration Act1953 (Cth) provide that an assessed decision by the ATO remains enforceable regardless of any pending appeal or review, the position is not altered. Nor, in my view, does the fact that upon an employee’s death any unpaid superannuation amounts remain owing. Secondly, action in relation to the Unpaid Superannuation Contribution was taken by the ATO against Mr Testart. Ms Testart is not a party to that matter and any recovery of the Unpaid Superannuation Contributions will not be paid to Ms Testart personally. In those circumstances, I am unable to see how the matters asserted by Ms Testart in (b) – (d) above are established. Thirdly, as to the assertion that the Unpaid Superannuation Contributions render Ms Testart solvent, s 52(2)(a) provides that a Court may dismiss the petition if is it satisfied that “the debtor is able to pay his or her debts”. In Sandall v Porter (1966) 115 CLR 666 at 670 Barwick CJ said:
Insolvency is expressed in s 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.
There is no evidence before the Court as to Ms Testart’s financial position in its entirety and she declined an invitation by the Court for time to provide more fulsome financial disclosure. Accordingly, on the evidence before the Court it is not able to be concluded that Ms Testart is able to pay her debts.
For the same reasons, I do not consider that the Unpaid Superannuation Contributions establish a cross-claim or set off against Mr Testart. Ms Testart is not a party to the ATO’s determination or assessment (or Mr Testart’s application for review of that determination) and any recovery of the Unpaid Superannuation Contributions will not be paid to Ms Testart personally.
Ground 7 – Fair Work Claim
By Ground 7 Ms Testart submits that she and Mr Testart are parties to Federal Court proceedings VID661/2021 currently being litigated in the Fair Work jurisdiction (Fair Work Claim). As I understand it, this is a claim under s 52(2)(b) that there is other sufficient cause to dismiss the Petition. Ms Testart submits that the Fair Work Claim is an action between her personally and Mr Testart and that the amount of the claim is $144,183.52 and as such exceeds the amount claimed in the Bankruptcy Notice. The circumstances that may constitute “other sufficient cause” are not a closed category: Deputy Commissioner of Taxation v Zeqaj [2019] FCCA 2740 at [11]. In Stratton v Bowles (No 2) 2015 FCA 43 Beach J said at [38] – [42]:
The existence of a cross-claim … may be a “sufficient cause” if the claim, if successful, well exceeds the judgment debt.
An important distinction is to be made between a cross-claim which is likely to succeed and a cross-claim which is a bona fide and reasonably arguable claim, but where it is not established by the judgment debtor that it is likely to succeed. In the former case, where it is established that the claim is likely to succeed, such a claim may warrant the refusal of a sequestration order (Rigg v Baker at [66] per French J, Singh v Deputy Commissioner of Taxation [2011] FCA 889 (Singh) at [114] per Collier J) In the latter case, only a basis for adjourning the creditor’s petition may be established, but the refusal of a sequestration order may not be justified (Rigg v Baker at [66] per French J).
…
Finally, it should be said that a judgment debtor does not establish a bona fide and reasonably arguable claim by merely producing a statement of claim in a separate proceeding or by pointing to such litigation. There must be sufficient evidence or other material to show that it satisfies both criteria to justify an adjournment; to demonstrate that it is reasonably arguable or of substance may require prima facie verification of the key factual elements as well as demonstrating legal tenability.
On Ms Testart’s evidence, the Fair Work Claim exceeds the amount of the Costs Orders significantly. Ms Testart’s evidence is that the claim is in respect of unpaid wages, annual leave and leave loading for the period 11 November 2015 to 30 June 2017 arising from her employment with Mr Testart however, the only document Ms Testart tendered to the Court in support of this claim was an offer of employment from Mr Testart to Ms Testart dated 30 June 2009, for the position of personal assistant. This falls very far short of establishing even the elements of the claim as asserted by Ms Testart and accordingly, on the material currently before the Court, it cannot be concluded that the Fair Work Claim is a bona fide and reasonably arguable claim. Accordingly, on the material currently before the Court, the Fair Work Claim does not amount to “other sufficient cause” for the purpose of s 52(2)(b) of the Bankruptcy Act. For completeness, Ms Testart confirmed before the Registrar that she did not seek that the hearing of the Petition be adjourned on the basis of the Fair Work Claim and no such application was made upon review.
Ground 10 - Solvency
As to Ground 10, Ms Testart submits that she is solvent and her evidence is that she has “sufficient cash assets I can readily draw upon to pay all my debts as and when they fall due…”. In support of this, Ms Testart filed an affidavit the afternoon before the hearing attaching an interim bank statement. The interim bank statement discloses a balance of $16.037.65 in Ms Testart’s name. The transfer of funds to provide this balance occurred on 17 and 18 January 2025. The Court put to Ms Testart that the interim bank statement was insufficient to establish solvency and that in the absence of understanding Ms Testart’s financial position in its entirety, it could not be satisfied that Ms Testart is able to pay her debts. Ms Testart declined the Court’s invitation to provide more fulsome financial disclosure and said she would not be assisted by further time to do so. Accordingly, on the basis of the information currently before the Court, the Court cannot be satisfied that Ms Testart is able to pay her debts for the purpose of s 52(2)(a).
EXTENSION OF TIME
Rule 2.02(3) of the Bankruptcy Rules provides that an application for review of a decision of a Registrar must be made within 21 days after the day on which the power was exercised, “subject to any direction by the Court or a Judge to the contrary”.
The Registrar made the sequestration order on 13 December 2024. Ms Testart lodged the review application on 30 December 2024. However, the Court was closed from 24 December 2024 until 7 January 2025. Ultimately, the Review Application was not accepted for filing until 9 January 2025. The Review Application was therefore filed two days out of time (see r 2.05(4) of the Rules). There is no evidence before the Court as to why the Review Application was not accepted for filing until 9 January 2025.
The time within which a review may be sought may be extended in the interests of justice. In addition, pursuant to r 2.02(3) of the Bankruptcy Rules I can make a contrary direction as to the time for commencing the review. In Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348 – 349 Wilcox J set out the principles to be applied in relation to whether to extend time. Those principles, which are non-exhaustive, include that “[t]he merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted”.
For the reasons set out above, I have found that Mr Testart has not proved the matters in ss 52(1)(a) and (b) of the Bankruptcy Act. Accordingly, I consider it is in the interests of justice that I extend time for the making of the Review Application.
DISPOSITION
For the reasons set out above, I make the following orders:
(1)the time for filing the Review Application be extended to 9 January 2025;
(2)the Petition be dismissed;
(3)the sequestration order made on 13 December be set aside; and
(4)there be no order as to costs.
I certify that the preceding eighty-five (85) numbered paragraphs are a true copy of the Reasons for Judgment of Judge J Young. Associate:
Dated: 23 April 2025
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