The Debtor - Lear, R.

[1989] FCA 598

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CATCHWORDS

BANKRUPTCY - Omission of words from note to bankruptcy notice

- whether note part of prescribed form - whether fundamental

defect in notice.

Bankruptcv Act 1966

Bankruptcy Rules, Schedule 1, Form 4

ROBERT LEAR - The Debtor (Applicant)

8801 oc' 1'787

SYDNEY

LOCKHART J.

8 AUGUST 1989

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IN THE FEDERAL COURT OF AUSTRALIA	1
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NEW SOUTH WALES DISTRICT REGISTRY	1 No. NB801 of 1989
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BANKRUPTCY DIVISION	1

RE:  ROBERT LEAR
The Debtor (Applicant)

JUDGE IWING ORDERS:	LOCKHART J.
DATE ORDER MADE:	8 AUGUST 1989
WHERE ORDER MADE:	SYDNEY

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1.    The application be allowed.

2.    The bankruptcy notice be set aside.

3.    The judgment creditor to pay the judgment debtor's costs, if any, of the application to set aside the bankruptcy notice.

NOTE:  Settlement and entry of orders is dealt with under

Order 36 of the Federal Court Rules.

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U . % a , LIMITED DISTRIBUTION

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IN THE FEDERAL COURT OF AUSTRALIA )

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NEW SOUTH WALES DISTRICT REGISTRY )	NO. NB801 of 1989
BANKRUPTCY DIVISION	1

RE:  ROBERT LEAR
The Debtor (Applicant)

8 August 1989

REASONS FOR JUDGMENT

LOCKHART J.:

This is an application by Robert Lear to set aside a bankruptcy notice issued by the Registrar in Bankruptcy on 7 April 1989 at the request of the creditor, Ingrid Hazelwood.

Mr Lear appears in person and the creditor is represented by counsel. Mr Lear has drawn attention to two defects in the notice which he concedes are formal defects. I need not mention them as I am of the view that they are formal defects. He has drawn attention to three other alleged defects which he asserts are fundamental defects. It is

which is the one upon which he principally relied.	sufficient for present purposes if I deal with one of them and
The notice requires the debtor within 14 days after service of the notice, excluding the day of service, to pay the amount claimed by the judgment creditor to the Registrar

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of the District Court of New South Wales at the Court House,

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Russell Street, Bathurst, or to secure the payment of the sum claimed to the satisfaction of this Court or the judgment

I	creditor, or to compound the sum.
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The notice goes on to say that:

"... if, within the period set out above,

you fail either to comply with either of the above-mentioned requirements of this notice or to satisfy the Federal Court of Australia that you have a counter-claim, set-off or cross demand (the word 'equal' is omitted) to or exceeding the sum specified in paragraph (A) of this notice, being a counter-claim, set-off or cross demand that you could not have set up in the action in which the judgment was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you."

There then follows the date of the notice, the signature of a Deputy Registrar in Bankruptcy and the seal of the Registrar in Bankruptcy.

The notice then has a note in these terms:

"NOTE : If you have a counter-claim, set-off or cross equal to or exceeding specified in paragraph (A), being a counter-claim, set-off or cross demand that you could not have set up in the action in which the judgment was obtained, you may, under sub-section 41(7) of the Bankruptcy Act 1966, within the period set out above, file an affidavit to that effect giving details of the counter-claim, set-off or cross demand, and, if you do so, the time for complying with the rquirements of this notice shall be deemed to have been extended until the Court determines whether it is satisfied that you have such a counter-claim, set-off or cross

demand. "

The note, however, omits the words "as the case requires, and the reasons why you were unable to set up the counter-claim set off or cross demand", which should be inserted after the word "demand" in line 12 above and before the words "and if you do so". This omission is what Mr Lear asserts is a fundamental defect in the notice.

The relevant principles are well established and need only brief statement. They were recently referred to in the judgment of the High Court in Kleinwort Benson Australia Limited v Crow1 (1988) 165 CLR 71 per Deane J. at 81, as follows :

the law of bankruptcy that a 'bankruptcy	"It has long been a fundamental precept of
notice, which is the foundation of a bankruptcy, attended as a bankruptcy is with penal consequences, is a matter in which great strictness is required': per Cozens-Hardy M.R., In re A Judgment Debtor, 530 of 1908 [l9081 2KB 474 at pp.
476-477. "

His Honour then proceeds to cite a number of well known authorities. Also in point are the judgments of judges of this Court in, for example, Re Wimbourne: Ex Darte the Debtor (1979) 24 ALR 494 and Re Wona: Ex Darte Kitson (1979) 38 FLR 207.

I note with interest that amendments were made in 1980 to the Bankruptcy Rules including an amendment to rule 10 by inserting the words, "and giving details of the counter-claim, set off or cross demand, as the case requires, and the reasons why he was unable to set up the counter-claim, set off or cross demand", after the words, "the Act". That amendment was made by rule 6 of the Statutory Rules number 385

of 1980. Schedule 1 to the Bankruptcy Rules, was amended by

rule 35 as follows:

"(a) by inserting in Form 4 'giving details of the counter-claim, set-off or cross demand as the case requires and the reasons why you were unable to set up the counter-claim, set-off or cross demand' after the words, 'file an affidavit to that effect'".

The amendment assumes that the Note to Form 4 is part of .the form. Indeed it has always been so regarded to my knowledge and I hold that it is part of the prescribed form of Bankruptcy Notice (Form 4).

The relevant act of bankrtupcy is the failure of the
debtor to comply with the requirements of the notice as set

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I	out in paragraph 40(l)(g) of the Bankru~tcv	Act 1966, see also
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I	sub-S. 41(7) of the Act. In my opinion the defect asserted by
I	Mr Lear is, upon proper analysis, in essence two defects.
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i	First, the omission in the note to state the words to which I
I	have already referred would, in my opinion, convey to a debtor
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I	that it is sufficient if he files an affidavit to the effect
i	that he has the requisite counter-claim, set off or cross
I	demand, being one that he could not have set up in the action
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in which the judgment was obtained. In truth the prescribed
i	form, the note to the form and the rules to which I have
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I	referred require that the reasons as to why the debtor is
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i	unable to set up the requisite counter-claim, set-off or cross
I	demand should appear in the affidavit. There is good reason
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i	for this because the effect of the filing of the affidavit, provided it is in proper form and complies with the rules, is to deem the time for compliance with the requirements of the notice to be extended until the Court has an opportunity to determine whether it is satisfied that the requisite counter-claim, set off or cross demand exists, thus avoiding
i	an act of bankruptcy being committed in the meantime. In my
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i	opinion the omission of those words from the note to the form
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I	in this case is not a mere formal defect or irregularity but
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i	is a fundamental defect in the bankruptcy notice.
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There is I think a second, though closely related reason why the omission is a fundamental defect. The note to the form as it presently reads would convey to the debtor that, if
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he files an affidavit to the effect set out in the note, and
i	gives details of the counter claim, set off or cross demand, time for compliance will be automatically extended. In short, the impression is conveyed to him that there is no necessity for the giving of reasons as to why he is unable to set up the requisite counter claim, set off or cross demand. ,
That is not the law, because, for the reasons I have already given, the statement of the reasons is an essential ingredient in the requisite affidavit which grounds the automatic extension of time to comply with the notice. That to my mind is, though related, a separate reason why the notice suffers from a fundamental defect. Accordingly I uphold the application and set aside the bankruptcy notice.

I order the judgment creditor to pay the judgment

debtor's costs, if any, of the application to set aside the

bankruptcy notice.

I certify that this and the preceding	five (5) pages are a true copy of the
reasons for judgment herein of the Honourable Mr. Justice Lockhart.
@&t- Associate
Dated: 8 August 1989

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The applicant appeared in person.

Counsel for Respondent:	Mr. McGonigal
Solicitors for Respondent:	Kenny Spring
Date of Hearing:	8 August 1989
Date of Judgment:	8 August 1989