Validity of a Bankruptcy Notice Served Twice

October 28, 2013

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CASENOTE

Godfrey v Weriton Finance Pty Limited [2013] FCA 1057

Although not specifically required under the Bankruptcy Regulations, it is prudent for lawyers to have Bankruptcy Notices served personally. However in some situations, personal service can be difficult, and lawyers will look to other methods of service including post and facsimile. But what happens when the same Bankruptcy Notice is served by two different methods, weeks apart, and the Debtor argues that the two means of service mislead them as to their obligations under the Notice?

In a recent decision of the Federal Court, Perry J has ruled that a Bankruptcy Notice which is served twice on a debtor is not generally capable of being misleading, at least to the extent in which it would warrant an order setting aside the notice under s.30 of the Bankruptcy Act 1966 (Cth)

Background

Mr Godfrey (the Applicant) owed to Weriton Finance $160,000.00 under a judgment debt. The Solicitors for Weriton attempted to personally serve Mr Godfrey with a Bankruptcy Notice on several occasions over the 4th  & 5th of July 2013. On each occasion, Mr Godfrey was not available in his offices to be served. After becoming frustrated with Mr Godfrey’s avoidance of service, Mr Farrar (the Solicitor for Weriton) sent the Bankruptcy Notice by facsimile in accordance with Reg 16.01 of the Bankruptcy Regulations 1996 (Cth). Following service of the Notice, Mr Farrar thought it prudent to serve the same Bankruptcy Notice personally and instructed an external process service firm to effect service. The firm’s agents had difficulties effecting service, but eventually on 24 July 2013, Mr Godfrey contacted the agent and organised a time for service, which took place later that day.

Immediately after service of the Bankruptcy Notice, Mr Godfrey applied to set it aside under Section 30 of the Bankruptcy Act 1966 (Cth), on the basis that the Notice was misleading in that he did not know when the 21 day period in which he had to comply with the notice, began to run.

Main Issue

Mr Godfrey, through Counsel, submitted that as the Notice was capable of misleading him in relation to the time for compliance, the Notice should be set aside relying on the reasoning of their Honours in Kleinwort BensonAustralia v Crowl [1988] HCA 34 at 79:

“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”

Mr Godfrey argued that the service of two bankruptcy notices, gave rise to inconsistent obligations, and without the creditor electing which bankruptcy notice they would rely upon, the dual notice became misleading & ambiguous, because the debtor did not know when to begin counting the 21 days. Mr Godfrey submitted that for the Bankruptcy Notice not to have been misleading, the creditor should  of stated (in a covering letter) that the further service was merely confirmatory of service on 5 July 2013.

Consideration & Decision

His Honour ultimately rejected Mr Godfrey’s submission for the following reasons: –

  1. The service of the bankruptcy notice on 24 July 2013 in no way absolved Mr Godfrey from complying with the Notice served on 5 July 2013 in accordance with rules.
  2. A reasonable person, in light of the previous attempts at personal service prior to the facsimile service on 5 July 2013, would consider the service of an identical bankruptcy notice some weeks later, as being confirmatory only, and would not give rise to the belief that the ‘clock had begun to run again’.

His Honour refused to set aside the Bankruptcy Notice.

Other Notable Issues

Although not ultimately relevant to the outcome of the application, His Honour considered whether Mr Godfrey’s experience as a registered and official liquidator should, as submitted by Counsel for Weriton,  be considered when determining whether or not Mr Godfrey indeed was mislead (or could have been misled). After considering comments made by Lockhart J in Re Wimborne, Ex parte the Debtor (1979) 24 ALR 494

the ‘courts draw a definite distinction between the possibility of the debtor being misled and the question whether he was misled in fact, the latter being an impermissible field of inquiry, it is the capacity of the bankruptcy notice to mislead the debtor to whom the notice is directed that matters, not some hypothetical debtor’

His Honour concluded that it was permissible to take into consideration  Mr Godfrey’s extensive experience in the insolvency industry when determining whether he would have been mislead upon the notice being served twice. If required to rule on the point, His Honour would have held Mr Godfrey was notmisled for this reason.

Practice Considerations

  1. Despite this judgment, Solicitors should ensure that they provide sufficient clarification in the covering letters of Bankruptcy Notices if they intend to serve the notice by more than one means.
  2. When appearing in application to set aside Bankruptcy Notice, Counsel should consider in their submissions and supporting evidence, the professional experience and background of any debtors who argue they have been mislead by a Notice.

About the Author:

Shane Wallace is a solicitor former practitioner at Carneys who works primarily in the areas of Aviation & Transport, Insolvency & Dispute Resolution