Case notes

Sarina v O’Shannassy (No 2) [2021] FCCA 338

Bankruptcy – application under s 306(1) or s 33(1)(b) of the Bankruptcy Act 1966 (Cth) (Act) for an order to vary bankruptcy notice by removing the post office box address of the creditor and substituting a street address – whether it is an essential requirement to the issue of a bankruptcy notice that it not specify a post office box as the creditor’s address – such requirement is essential and its non-fulfilment, although a defect or irregularity, is not a formal defect or irregularity amenable to being cured under s 306(1) or s 33(1)(b) of the Act – interim application dismissed and bankruptcy notice set aside.

In this matter there was no dispute that the bankruptcy notice was invalid because it specified a post office box rather than a street address as the creditor’s address. The issue was whether the Court had power to amend the bankruptcy notice and so cure the defect under either:

  1. s 306(1) of the Bankruptcy Act 1966 (Cth) (Act) or
  2. s 33(1)(b) of the Act.

Mr Sarina, the recipient of the notice, submitted the defect was beyond these powers or, if it was within power, the Court should not cure the defect. Mr Sarina relied on the judgment of Lee J in Metledge v Hopkins [2020] FCA 561.

In Metledge Lee J held that the necessity to identify an address at which payment of the debt could be made (or an offer can be made to secure or compound the debt) is an “essential matter” but that a post office box could not constitute such address and, for that reason, the bankruptcy notice was “invalid” (citing Nugent v Brialkim Pty Ltd (1985) 61 ALR 725). Explaining this Lee J noted that it was:

difficult to see how it could be said that [a post box] amounts to a place where the debtor could make payment or offer to secure or compound the debt. Make the payment or offer to whom? The postmaster? A postal clerk? The present circumstance is quite different from the not uncommon situation where an address is given for payment at the address of a creditor’s solicitor.

While accepting the Federal Court decision of Metledge was binding on the Federal Circuit Court several reservations were noted, in particular:

  • the principle Lee J cited from Nugent that the address given should be one which during the relevant period it is reasonably practicable for the debtor to make payment or to offer to secure or compound did not appear to be based on the construction of any legislative text
  • the test that the notice must include an address at which it was ‘reasonably practicable’ for the debtor to pay their debt does not sit comfortably with the High Court’s judgment in James  v Federal Commissioner of Taxation [1995] HCA 75 which simply said the notice “merely gives an address at which the debtor may, at his option, seek out the creditor and pay him”.
  • it did not have brought to its attention that the prescribed form of bankruptcy notice contained the words “name and address, including telephone, fax and email address if appropriate” which suggested that with those options to contact the creditor then any practical obstacle to seek out and pay the debt demanded was not significant, and that in any event:

A bankruptcy notice specifying a post office box as the address at which the debt can be paid would constitute a representation to the debtor that the creditor will accept payment of the debt by the debtor posting or delivering to the post office box cash or a cheque (assuming it is reasonable to interpret the demand for payment as payment by means other than cash) without any further need for the debtor to contact the creditor.

While noting the concerns about the binding precedent the decision was that the notice received by Mr Sarina was invalid. The court then had to determine whether the recording of a post box could be characterised as a ‘formal defect or irregularity” such that any injustice that may arise from it could be cured under s306.

Section 306

The court noted that the issuing of a bankruptcy notice under s 41 of the Act is a “proceeding under” the Act, and that s 306(1), therefore, is capable of applying to a bankruptcy notice. The High Court in Adams v Lambert [2006] HCA 10 considered the scope of s 306(1) and from its reasoning the “correct question” is whether the “correct completion of the form prescribed by the regulations in every respect is a requirement made essential by the Act”; and it is difficult to answer that question in the affirmative where the irregularity “could not have misled the [debtor] as to what it was necessary to do in order to comply with the requirements of the notice”.

Applying those principles the Federal Circuit Court went on to say:

The question is whether, having regard to the legislative purpose of the provision with which the bankruptcy notice has not complied, and the significance or importance of the defect or irregularity, compliance with the requirement from which the bankruptcy notice has departed is a requirement which the Act makes essential. And the difficulty … is that in Metledge Lee J held that the Act requires that the bankruptcy notice specify as the creditor’s address an address that is not a post office box, and the Act renders the satisfaction of that requirement an essential condition to the validity of a bankruptcy notice…as the High Court held in Adams, a bankruptcy notice’s not complying with a requirement that is essential to its validity cannot be characterised as a “formal defect or an irregularity.

The Court concluded that specifying a post box is a defect or an irregularity that cannot be cured under s 306 of the Act. For that reason, the bankruptcy notice was invalid.

Paragraph 33(1)(b) of the Act – the Court may “at any time allow the amendment of any written process, proceeding or notice under this Act”

While a power expressed in broad language, in Skouloudis v St George Bank Ltd [2008] FCA 1765 it was held that the power is only available to authorise the amendment of a bankruptcy notice if the notice can properly be characterised as a notice under the Act. A bankruptcy notice that is a nullity cannot be so characterised.

The Federal Circuit Court observed that by specifying an address that is a post office box, the bankruptcy notice is invalid and, for that reason, was not a notice under the Act. This power was therefore not available to permit the Court to amend the bankruptcy notice to substitute an address for the creditor that is not a post office box.

Summary

The defect or irregularity constituted by the bankruptcy notice specifying a post office box address, therefore, was not a formal defect or a formal irregularity. That meant that the bankruptcy notice was invalid, and was not a notice under the Act which, in turn, means that neither s 306 nor s 33(1)(b) of the Act were available to cure the defect or irregularity.

Francis and Inspector-General in Bankruptcy [2021] AATA 644 (22 March 2021)

Bankruptcy – annulment of bankruptcy – review by Tribunal of decision of Inspector-General in Bankruptcy of contribution assessment – all outstanding debts met – Trustees released – consideration of difference between annulment and discharge of bankruptcy – application dismissed under section 42B of the Administrative Appeals Tribunal Act 1975 (Cth)

Practice and procedure – bankruptcy – annulment of bankruptcy – decision sought by the applicant no longer of any practical effect and serves no other legitimate purpose – application has become frivolous and vexatious – application dismissed under section 42B of the Administrative Appeals Tribunal Act 1975 (Cth)

Background

On 28 April 2014, the Trustees issued the applicant with a notice of contribution assessment under section 139P of the Bankruptcy Act 1966 (Cth) (the “Act”). The applicant requested the respondent review the Trustees’ decision. On 30 June 2014, a delegate of the respondent wrote to the applicant advising that they had decided to set aside the Trustees’ assessment and to make fresh assessments. The applicant sought review of the respondent’s decision before the Tribunal. Separately there was a sequence of further legal proceedings relating to an annulment that was sought, the sale of a property, and after the applicant became a beneficiary of her will, proceedings in relation to the deceased estate.

On 16 June 2017, the Trustees received $850,000 from the deceased estate. After further property sales the bankruptcy was annulled. The respondent made an application to have the matter dismissed pursuant to sections 42B(1)(a) or (c) of the AAT Act on the basis that the bankruptcy was now at an end and that a review of the decision relating to the contributions assessment was therefore obsolete and that, as a consequence, the application lacked any practical effect and was futile. The applicant continued to resist the dismissal.

Consideration

In Re Farnan and Inspector-General in Bankruptcy [2007] AATA 1199 the Tribunal dismissed an application for a review of a decision by the Inspector-General to affirm an objection by the trustee on the basis that as the applicant had since become discharged from the bankruptcy there would no longer be any utility in reviewing the decision of the Inspector-General thus enlivening the discretion conferred on the tribunal by s42B(1) of the AAT Act to dismiss the application for review.

Given the annulment the Tribunal accepted the respondent’s contention that there is no mechanism under the Act for the applicant’s previous bankruptcy to be revived. The Tribunal accepted the Inspector-General’s submissions on the distinction between annulment under s 153A of the Act 1966, and discharge under s 149. It went on to note that:

17. In this respect there is an important distinction to be made between a bankruptcy brought to an end as a consequence of an annulment pursuant to section 153A of the Bankruptcy Act …and the effect of a discharge of a bankrupt pursuant to section 153(2)(aa) of the Bankruptcy Act where the discharge has been affected pursuant to section 149 of the Bankruptcy Act.

18. In respect of [s149], the Bankruptcy Act includes [s139R] which renders a former bankrupt still potentially liable to pay an income contribution following the discharge of their bankruptcy .... However, in the case of an annulment pursuant to section 153A there is no equivalent provision to section 139R. … The Tribunal is satisfied that a liability to meet an outstanding contribution assessment is only available in respect of a person who is either a bankrupt or a discharged bankrupt but not in respect of a person whose bankruptcy has been brought to an end as a consequence of being annulled.

Conclusion

The Tribunal concluded that given it was satisfied that the review of the decision sought by the was no longer of any practical effect and would serve no other legitimate purpose and in that sense has become frivolous and vexatious within the meaning of section 42B(1)(a) of the AAT Act and should be dismissed.

PERGOLETO v CHANDLER & ORS [2021] SASC 30 (24 March 2021)

Application pursuant to Inheritance (Family Provision) Act 1972 (SA) – estate fully distributed – extension of time required – applicant a bankrupt – other causes of action vest in the trustee.

The case includes an interesting discussion about the principle that ‘family provision’ type applications are personal to the bankrupt and hence do not vest.

Background

The applicant commenced proceedings seeking remedies pursuant to the Inheritance (Family Provision) Act 1972 (SA) (“the IFP Act”). The applicant was one of the children of the deceased who died leaving a will. A grant of probate was made and the entire estate was distributed shortly thereafter in accordance with the terms of the will. The proceedings were commenced out of time. The applicant sought an extension of time.

The effect of bankruptcy

The fact that the applicant was an undischarged bankrupt was relevant to the application. The period of bankruptcy had been extended to eight years. Accordingly, he remained an undischarged bankrupt.

When a person becomes bankrupt their property forthwith vests in the trustee in bankruptcy. Property of a bankrupt includes a chose in action. The Court went on to note that it might be thought, therefore, that the claim of the bankrupt under the IFP Act would vest in the trustee but that it appears that may not be the case. In Collicoat & Ors v McMillan & Anor Ormiston J said:

It is probably sufficient to say that it has been accepted that the right to make a claim for further provision itself does not pass to the official trustee but is a personal right and thus the official trustee is not in this case nor in others a relevant party to the application, although from time to time the official trustee may have a right to intervene to protect an interest already given: see Re Estate of Robert Frangos (unreported, Court of Appeal, 7 July 1995). Because of the personal nature of the claim the better view appears to be that an order should not be made if it will not in fact benefit the applicant. If an order for further provision, intended as it is to provide for a person’s maintenance and benefit, would invariably go to his creditors and provide no other benefit to the applicant, then it would not seem appropriate to exercise the discretion at the second stage of the enquiry even if a decision were made that the testator had otherwise failed in the distribution of his or her estate to make adequate provision for proper maintenance and support: see McLeod v. Johns [1981] 1 N.S.W.L.R. 347 at 348.

Dart J noted that the authorities cited in support of the principle all trace the position back to the case of Coffey v Bennett [1961]VR 264  but that decision was made at a time when the Bankruptcy Act 1924 (Cth) was applicable. It turned on the proposition that the common law of bankruptcy excluded certain property from vesting in the trustee. One such type of property was an IFP Act‑type claim. His Honour noted that in contrast the provisions of the current Bankruptcy Act are perhaps more prescriptive than the 1924 Act. As mentioned above, a chose in action ordinarily vests in the trustee. There are exceptions in s116(2)(g). However, Dart J suggested that:

14. It would appear that there is a cogent argument that a cause of action under the IFP Act does not fall within the definition provided within the property excluded by s 116(2)(g). It is not a claim for damages or compensation for personal injury or wrong done to the applicant.

16. The question becomes whether it is appropriate to exclude causes of action, other than those specified in s 116(2)(g), from vesting in the trustee upon the making of the sequestration order. Arguably not. Nonetheless, it has to be accepted that there are a number of authorities which suggest that an IFP Act action does not vest. It is not a matter that needs to be resolved for the purposes of this matter, the action being out of time in any event. It is a matter that would most appropriately be resolved by an intermediate appeal court.

Dart J went on to note that even if the cause of action was pursued by the bankrupt and it was apparent an order for provision would go to the creditors, then following Ormiston, it may not be appropriate to order provision from the deceased estate. And added that because “after acquired property” vests in the trustee as soon as it is acquired by the bankrupt, then even if a bankrupt could prosecute a claim and obtain a provision, the fruit of the litigation would immediately vest in the trustee on the Court making such an order.