Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Bad bankruptcy notices

A bankruptcy notice was found to have been wrongly issued by the Official Receiver because it did not attach a final judgment or order of a court, merely a costs assessor’s certificate: Thomas v Raftopoulos [2020] FCCA 3515.

According to AFSA’s explanation of the law in Official Receiver Practice Statement 6 – Applying for a bankruptcy notice – the “creditor will need to provide one of the following” listing final court orders or judgments.  ORPS 6 then says that “an application for a bankruptcy notice that does not comply with the requirements outlined above may be returned for resubmission”.  More details on the nature of a final judgment or order as a “precondition to the issue of a bankruptcy notice” are then given.

In Thomas v Raftopoulos, the court set aside the bankruptcy notice, saying that a costs certificate

‘is not an order of the …. Court that the applicant before me pay any money to the respondent, let alone a final judgment or final order. The defect in the bankruptcy notice is fatal. It cannot be cured pursuant to s 306 of the Bankruptcy Act’.[1]

ORPS 6 says that a creditor applying for the issue of a bankruptcy notice must pay the application fee – $470 – which cannot be waived or refunded where a creditor later discovers that there was an error or deficiency in the application and/or attachments that were submitted to the Official Receiver.

While that is no doubt a correct view of the law, one would like to think that the basic features of a notice are checked by the Official Receiver before it is issued, and, if there is a patent defect, ‘returned for resubmission’.

That in particular should be the case if applications for bankruptcy notices are filed for amounts above the new statutory minimum of $10,000 that applies from 1 January 2021, or, comparably, those that do not have a final court order attached.

But there is a bigger issue here.  The question of defective bankruptcy notices was considered by the 1988 Harmer Report – that “although each bankruptcy notice is subject to the close scrutiny of the court registry [as the case was then] before it is issued… this does not prevent defective and misleading notices being issued” – but more so in the larger context of the Report’s main recommendation that bankruptcy notices should be done away with and replaced by a simpler form of statutory demand.

As the Report said, the notice

“in the mandatory form presently prescribed by the statute, is unnecessarily complicated and is subject to excessive technical dispute. The form of it has been aptly described as calculated to ‘puzzle, perplex or mislead debtors’ (the very thing that other authorities make it clear a bankruptcy notice is not supposed to do)”.[2]

The Report also described the process of its issue as time-consuming and expensive, for the court (then) and the creditor.

The time and expense side can be considerable.  The creditor suffered in Thomas v Raftopoulos, whether wisely or not is another matter.  Circumstances could be contemplated where a creditor with an invalid notice might seek costs from AFSA[3] or bring a claim for defective administration.[4]

The time and expense involved is a bigger issue again, and must await my further comment.

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[1] See The Law of Bankruptcy Notices and Creditors’ Petitions, Simpson, 2020 at [2.29].

 

[2] The Harmer Report went further and also recommended that the “doctrine of relation back (which is dependent on the notion of the act of bankruptcy)” be abolished, as a “fictitious, artificial and abstract concept … rarely understood”, and rarely applied in practice.

[3] With some precedent available in Tsakirakis v Official Receiver in Bankruptcy & Anor [2014] FCCA 517, involving the Official Receiver being ordered to pay part costs in respect of the issue of a defective section 139ZQ notice.

 

[4] See www.afsa.gov.au

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