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A recent decision of Judge Raphael in the Federal Circuit Court has provided a timely reminder to all lawyers (and a costly reminder to the solicitors involved) that caution needs to be exercised when relying on service of a Bankruptcy Notice (Notice) through the debtor’s solicitors.

In National Australia Bank Ltd v Elgammal[1] [2014] FCCA 828, the Court dismissed NAB’s Petition, (with costs) after the Court held that the debtor was never validly served with the bankruptcy notice on which the application was based. It followed that the debtor couldn’t have committed an ‘act of bankruptcy’ a  prerequisite to the making of a sequestration order.

Background

NAB has obtained judgment against Mr Elgammal in the NSW Supreme Court under a guarantee he had provided for an associated company. Mr Elgammal engaged a solicitor, Mr Koutzoumis to negotiate the judgment debt. Over the following months, Mr Koutzoumis and NAB’s solicitors exchanged correspondence. In one of the letters, NAB expressly asked Mr Koutzoumis whether he had instructions to accept service. Although Mr Koutzoumis reply was in evidence, in was heavily redacted, and it was not submitted by the NAB that Mr Koutzoumis had agreed to accept service. Nonetheless, NAB’s solicitors served on Mr Koutzoumis, by email, a copy of the Notice. Immediately after the email was sent, Mr Koutzoumis wrote to NAB’s solicitors advising (to the effect) that he did not have instructions to accept service, that he would not accept service, and the NAB should take steps to personally service his client.

Notwithstanding this email, NAB filed a Creditors Petition on the basis of Mr Elgammal’s failure to comply with the Notice served on his solicitors. NAB relied on Reg 16.01(1)(e) of the Bankruptcy Regulation which provides a mechanism for service by:

(e) sent by facsimile transmission or another mode of electronic transmission:

(i)              to a facility maintained by the person for receipt of electronically transmitted documents; or

(ii)             in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person.

Reasoning

After considering the Court’s earlier judgment on a similar point in Mulherin & Quinn Villages Pty Limited,[2]His Honour ( in somewhat or a rare occurrence) went on to reject the reasoning and interpretation of Regulation 16.01(1) (e) of the Bankruptcy Regulations 1966 given by Burnett FM (as His Honour then was).  In the present case, Judge Raphael concluded that: –

In relation to e (i) – the email inbox of Mr Koutzoumis was not a facility maintained by the person for the receipt of electronically transmitted documents. To that end, His Honour noted that the reference to the “person” was a reference to the judgment debtor.

In relation to (e)(ii) – To the contrary of NAB’s submission, nothing in the evidence suggested that the Notice would be received by Mr Elgammal in the ‘ordinary course of events’. To that end, His Honour noted that Mr Koutzoumis made no representation to NAB’s Solicitors that he had instructions to accept service of the notice, and almost immediately, he wrote to NAB’s solicitors advising that he did not and could not accept service.

His Honour went on to reject NAB’s submission for the Court to exercise its discretion to dispense with the requirement for service of the Bankruptcy Notice. His Honour was not satisfied that the Notice ever did reach Mr Elgammal, and that he was therefore not given the opportunity to comply with it.

Practice Point

Although not required under the Bankruptcy Regulations, personal service of a bankruptcy notice is prudent. In circumstances where a party seeks to rely on service through the debtor’s solicitors, the solicitors acceptance of service should be express ,unequivocal  and contained in a letter which can be produced in evidence.

About the Author

Shane is an Associate who primarily practises in commercial and insolvency law at Carneys Lawyers in Sydney. He regularly appears in the Bankruptcy Lists of the Federal Courts. For more information, please contact Shane at reception@carneys.com.au or (02) 8226 5555.