plaintiff. Sequestration order made against the estate of Peter Geoffrey Compton; applicant creditor's costs taxed in accordance with the Federal Court Rules and paid from the estate; copy of order to be...
Key principles
On the evidence, personal service of the bankruptcy notice NN4237/2008 on the respondent on 19 November 2008 was established on the balance of probabilities by the affidavit and...
A failure to use the precise wording of r.4.04(1)(a)(i) in an affidavit of search accompanying a creditor's petition is a defect of form or substance that, where there has been...
The statutory requisites of s.52(1) of the Bankruptcy Act were adequately proved (including the act of bankruptcy within six months of presentation), and on that basis a...
Issues before the court
Was the bankruptcy notice NN4237/2008 validly served on the respondent?
Did the affidavit of search accompanying the creditor's petition comply with r.4.04(1)(a) of the Federal Magistrates Court (Bankruptcy) Rules 2006,...
Have the requirements of s.52(1) of the Bankruptcy Act been proved to justify a sequestration order?
Plain English Summary
The Deputy Commissioner of Taxation sought sequestration of Mr Compton's estate for non-compliance with a bankruptcy notice. The respondent denied service. The court accepted the process server's sworn evidence and concluded the notice was personally served on 19 November 2008, giving an act of bankruptcy date of 10 December 2008. The respondent also challenged the form of the affidavit of search required by r.4.04; the court found substantial compliance, treated the omission as a formal defect that caused no prejudice, and dispensed with strict compliance. All statutory requirements under s.52 were satisfied, and the court made a sequestration order. Costs were to be taxed and paid from the estate.
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Deep Dive
2,231 words · generated 11/08/2026
What happened
Background and procedural posture
Cited legislation
1 cited instrument linked from this judgment.
The Deputy Commissioner of Taxation (DCT) filed and presented a creditor's petition on 28 May 2009 seeking a sequestration order against the estate of Peter Geoffrey Compton (the respondent). The petition alleged an act of bankruptcy under s.40(1)(g) of the Bankruptcy Act 1966 (Cth) by reason of the respondent's failure to comply with a bankruptcy notice (NN4237/2008) said to have been personally served on 19 November 2008 and requiring compliance by 10 December 2008 (Reasons for Judgment [1]; Orders).
The bankruptcy notice was issued by the Official Receiver on 4 November 2008 and claimed a debt of $66,515.76 based on a District Court default judgment (Reasons for Judgment [1]).
The respondent filed a notice of opposition on 11 August 2009, primarily contending that he was not served with the bankruptcy notice and therefore had not committed the alleged act of bankruptcy (Reasons for Judgment [2]).
The matter was heard in the Federal Magistrates Court (Bankruptcy jurisdiction) on 21 October 2009 and 16 November 2009, with judgment delivered 23 December 2009 (cover sheet).
Factual contest
Applicant's evidence: an affidavit of service sworn by process server Bernard John Hensler (1 December 2008) deposed personal service on 19 November 2008 at 7.10 pm at 28 Beach Drive, Killcare, with recorded identification statements (Reasons for Judgment [6]-[7]). Supporting evidence about process field reports and the practice of the process server was provided by Mark Adam Stephenson (affidavit sworn 1 October 2009) (Reasons for Judgment [11]-[12]).
Respondent's evidence: Mr Compton swore an affidavit (13 September 2009) denying service by Hensler and denying knowledge of him; he also said he had not been served with the District Court statement of claim (Reasons for Judgment [4]-[5]).
Cross-examination and credibility: Hensler and Compton were cross-examined. The court read the affidavits, observed witnesses and preferred Hensler's evidence, concluding personal service occurred and that the respondent committed the act of bankruptcy (Reasons for Judgment [24]-[31]).
Additional procedural challenge
The respondent also challenged the sufficiency of the affidavit of search accompanying the petition under Federal Magistrates Court (Bankruptcy) Rules 2006 r.4.04(1)(a), contending the affidavit (Allison Serje, 28 May 2009) did not explicitly state that "no application in relation to the bankruptcy notice has been made" as required by r.4.04(1)(a)(i) (Affidavits of Search [6]-[9]).
The respondent conceded that no such application had in fact been made and that no substantial injustice arose from the wording (Affidavits of Search [9], [23]).
Outcome
Barnes FM found service proved, concluded the act of bankruptcy date to be 10 December 2008 (within six months of presentation), found substantial compliance with r.4.04 (or that any omission was a formal defect dispensable by the court), and made a sequestration order against Mr Compton, with costs to be taxed and paid from the estate (Orders; Section 52 [1]-[7]; Affidavits of Search [22]-[26]).
Why the court decided this way
Primary factual finding: credibility and balance of probabilities
The court's decision on service rested on credibility assessment. Barnes FM observed that Mr Hensler was an experienced process server with a consistent recollection of events, was independent and had no apparent motive to fabricate, and that his manner and detail in evidence were convincing (Reasons for Judgment [24]-[26], [29]).
The respondent's evidence was equivocal: rather than a firm denial of being served with the District Court statement of claim and bankruptcy notice, Mr Compton repeatedly said he could not recall being served, and in cross-examination he accepted he simply could not remember (Reasons for Judgment [20]-[23], [30]-[31]).
Having observed witnesses and read the affidavits, the court preferred Hensler's evidence and accepted he had attended the property on both 17 and 19 November 2008 and personally served Mr Compton on 19 November 2008 (Reasons for Judgment [27]-[29]). This is a classical application of the balance of probabilities with credibility assessment.
Rule-compliance issue: court's power to dispense and nature of defect
The defendant attacked the petition on the basis that the affidavit of search did not precisely satisfy r.4.04(1)(a)(i). The respondent argued the rule established an "essential" statutory requirement such that failure to comply would invalidate the petition (Affidavits of Search [5]-[13]).
The court examined authorities on whether a failure is a "formal defect or an irregularity" (Adams v Lambert) and the distinction between statutory requirements under the Act and rules of court (Hussain v King Investment) (Affidavits of Search [8]-[18]).
Barnes FM accepted the point that rules of court differ from statutory obligations; rules may be dispensed with by the Court in appropriate circumstances and there is an overriding power to do so (Affidavits of Search [17]-[18]).
On the facts, the affidavit of search substantially complied: it stated searches were performed and that no application to set aside or extend time had been found, and the respondent conceded no such applications had been made and there was no prejudice. Accordingly the court treated the omission as a formal defect/irregularity and dispensed with full compliance (Affidavits of Search [22]-[26]).
statutory requisites: s.52(1)
The court checked the matters required by s.52(1) and was satisfied that the petition was presented in correct form, the debt exceeded jurisdictional threshold, service of the petition was effected, the debt was still owing, and the act of bankruptcy fell within the six-month window for presentation (Section 52 [1]-[2], [6]).
Mr Compton did not satisfy the court of the ability to pay debts or that there was other sufficient cause not to make a sequestration order (Section 52 [3]-[6]). The court therefore made the sequestration order (Section 52 [7]).
Before and after state of the law
Before
Pre-existing authorities considered included:
Adams v Lambert (2006) for the test whether a requirement is "made essential" and whether a defect is formal/irregular and curable under s.306 of the Bankruptcy Act (Affidavits of Search [8]-[11]).
Kleinwort Benson v Crowl (1988) cited for statutory construction principles (Affidavits of Search [10]).
Atkinson v Oakleigh Holdings and Commissioner of Taxation v Kelly were authorities discussing requirements of notices and whether non-compliance caused nullity (Affidavits of Search [14]-[15]).
Hussain v King Investment recognised the distinction between rules of court and statutory obligations and that courts can dispense with rules of court in appropriate cases (Affidavits of Search [17]).
de Robillard v Carver (Full Court) had rejected a contention that proceedings were incurably flawed by non-compliance with bankruptcy rules and found such matters do not go to jurisdiction (Affidavits of Search [20]-[21]).
Contribution of this judgment
The judgment applies those authorities within the FMCA context: it reiterates that courts can dispense with strict compliance with court rules (as opposed to statutory provisions) and will treat omissions in rule-based affidavits as formal irregularities where there has been substantial compliance and no prejudice. It confirms that the absence of the precise wording in the search affidavit is not necessarily fatal, especially where the respondent concedes no application existed and no prejudice is shown (Affidavits of Search [22]-[26]).
After
Practically, the decision reinforces that:
Credible process-server evidence will be accepted in disputed service cases where the respondent's recollection is weak;
Strict literal compliance with r.4.04 is preferable, but courts may cure or dispense with formal non-compliance if there is substantial compliance and no prejudice;
Challenges to petitions based on technical non-compliance with rules of court are unlikely to succeed where the underlying statutory requirements (s.52) are satisfied and the defect is procedural rather than jurisdictional.
Key passages with plain-English translation
Preference of evidence on service (Reasons for Judgment [24]):
Quote: "... where there is a conflict in the evidence I prefer the evidence of Mr Hensler ..."
Plain English: The judge found the process server more believable than the respondent, so he accepted the server's sworn account that the bankruptcy notice was handed to the respondent.
Rule 4.04 text (Affidavits of Search [2]):
Quote: Rule 4.04 requires an affidavit stating that court records have been searched and either no application in relation to the bankruptcy notice has been made, or any such application has been finally decided (or the time-extension application finally decided), and an affidavit of service.
Plain English: For petitions based on failure to comply with a bankruptcy notice, the creditor must file an affidavit showing court records were checked to confirm the debtor has not made procedural applications challenging or delaying the notice, and must file proof of service of the notice.
Rules vs statutes (Affidavits of Search [17]-[18]):
Quote: "There is a critical difference between rules of court, on one hand, and statutory obligations on the other... there was 'always an overriding power in the Court to dispense with the effect of rules of court.'"
Plain English: The judge emphasised that court rules are not the same as the statute itself; the court can relax or set aside rule requirements where it is appropriate to do so.
Disposition (Section 52 [7]):
Quote: "... a sequestration order should be made against the estate of Peter Geoffrey Compton ..."
Plain English: After finding the requirements were met, the judge ordered the formal bankruptcy sequestration of Mr Compton's estate.
What fact patterns trigger this precedent
This judgment will be directly relevant where:
A creditor presents a creditor's petition grounded on s.40(1)(g) (failure to comply with a bankruptcy notice) and the debtor disputes service of the bankruptcy notice. The decision illustrates the court's approach to assessing conflicting oral and affidavit evidence about service (Reasons for Judgment [24]-[31]).
The affidavit of search accompanying the petition under r.4.04 is imperfect in form (e.g. does not use the exact phrasing of r.4.04(1)(a)(i)), but there is substantial compliance and no demonstration of prejudice. The court's willingness to dispense with strict rule compliance is instructive (Affidavits of Search [22]-[26]).
Where the respondent concedes that no in-court application to set aside or extend the time for the bankruptcy notice was made; the concession materially reduces the likelihood that a minor phrasing omission in the search affidavit will be fatal (Affidavits of Search [9], [23]).
Less likely to be followed where
The defect involves non-compliance with an express statutory requirement in the Bankruptcy Act or Regulations (which may be "essential"), as distinct from a rule of court. In such cases, precedent such as Kelly and Atkinson may suggest a different outcome depending on statutory wording (Affidavits of Search [14]-[15]).
How later courts have treated it
This decision is at Federal Magistrates Court (now Federal Circuit Court) level and applies established principles rather than breaking new ground. The judge relied on Full Court authority (de Robillard) and High Court direction (Adams v Lambert) to frame the approach to defects and irregularities. It accords with prior FMCA decisions (Kidney v Fitzpatrick) where courts have dispensed with strict compliance where substantial compliance existed and no prejudice flowed ([Affidavits of Search [19]-[21]]).
Because this is a single decision, higher courts could distinguish it where rule non-compliance relates to jurisdictional or statutory requirements rather than court rules. The judgment itself notes material differences between rules and statutory obligations and cites authorities that have treated statute-required particulars as "essential" (Affidavits of Search [10], [14]).
Still-open questions
Precise boundary between "made essential" and curable rule non-compliance
While Barnes FM applied Adams v Lambert and Kleinwort Benson principles to treat the omission as a formal defect, the judgment concedes the threshold question, whether a particular requirement is "made essential", is a matter of statutory construction (Affidavits of Search [8]-[11], [25]). Different facts or different wording in the rules or regulations could produce a contrary result, particularly where the rule mirrors statutory form requirements.
Distinguishing rules of court from statutory/regulatory requirements
The court relied on the proposition that rules of court can be dispensed with (Affidavits of Search [17]-[18]), but where the Rules import or restate statutory requirements, or where the Rules themselves are made under statutory power, later courts may have to decide more finely whether the particular provision is effectively "statutory" in effect.
Extent of acceptable "substantial compliance"
The judgment treated the Serje affidavit as substantially compliant because it stated searches had been conducted and disclosed that no set-aside or time-extension applications were found, combined with the respondent's concession of no actual application. In cases without such a concession or with more substantive omissions, courts will have to weigh the significance of missing wording and any prejudice caused to the debtor.
Credibility assessments in service disputes
Barnes FM preferred the process server where the respondent's recollection was equivocal. The decision illustrates how persistent, detailed process-server evidence supported by organisational contemporaneous practices (process field reports) can carry the day, but the specific assessment of recollection and corroboration will always be fact-sensitive.
Closing note
This judgment is a useful FMCA-level exposition on how courts treat contested service of bankruptcy notices and defects in court-rule-based search affidavits. It emphasises the court's practical ability to cure procedural irregularities where there is no prejudice and statutory requisites for sequestration are otherwise clearly established (Reasons for Judgment [22]-[26]; Section 52 [1]-[7]).
This is general legal information, not legal advice. I can make mistakes. Before you act on this, rely on it, or use any draft, get a qualified Australian lawyer to check it.
Judgment (7 paragraphs)
[1]
(1) A sequestration order be made against the estate of Peter Geoffrey Compton.
(2) The applicant creditor's costs (including reserved costs, if any) be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
(3) A copy of this order is to be provided to the Official Receiver in Sydney within two (2) days.
[2]
The Court notes that the date of the act of bankruptcy is 10 December 2008.
[3]
On 28 May 2009 the applicant, the Deputy Commissioner of Taxation (the DCT), filed and presented a creditor's petition seeking that a sequestration order be made against the estate of the respondent, Peter Geoffrey Compton. The creditor's petition was said to be based on an act of bankruptcy consisting of a failure by the debtor to comply on or before 10 December 2008 with the requirements of a bankruptcy notice said to have been served on him on 19 November 2008. Both the creditor's petition and the bankruptcy notice claimed that the debtor owed the creditor the amount of $66,515.76, consisting of an amount due under a final judgment obtained in the District Court of New South Wales on 13 June 2008 inclusive of costs, plus interest on the judgment up to 3 November 2008. The bankruptcy notice (bankruptcy notice NN4237 of 2008) was issued by the Official Receiver on 4 November 2008.
The respondent filed a notice of opposition to the petition on 11 August 2009 on the basis that he was not served with the bankruptcy notice and therefore had not committed an act of bankruptcy within s.40(1)(g) of the Bankruptcy Act 1966 (Cth) (the Act).
The matter was heard at the same time as the creditor's petition filed and presented by the DCT seeking that a sequestration order be made against Mr Compton's wife, Claire Compton, on the basis of a failure to comply with a bankruptcy notice based on the same debt.
In an affidavit sworn on 13 September 2009 Mr Compton attested that he had "read the Affidavit of Service [of the bankruptcy notice] of Bernard John Hensler sworn 1 December 2008" and that he "was not served with a copy of the Bankruptcy Notice as deposed to by Mr Hensler". He denied that he had the conversation with Mr Hensler deposed to in the affidavit of service of the bankruptcy notice or any conversation with Mr Hensler at all. He claimed that to the best of his knowledge he had never met Mr Hensler.
Mr Compton went on to attest that, while the debt claimed by the DCT in the bankruptcy notice was "purportedly based on a Default Judgment obtained by the Deputy Commissioner of Taxation against [him] in the District Court of New South Wales at Sydney in proceedings no. 1891 of 2008", at no time was he served with a copy of the statement of claim in the District Court proceedings. He stated that the first he knew of the existence of the District Court proceedings, the default judgment obtained by the DCT and the bankruptcy notice was "when [he] was served with a copy of the Creditor's Petition in these proceedings".
The evidence relied on by the applicant in relation to service of the bankruptcy notice includes the affidavit of Bernard John Hensler sworn on 1 December 2008 and filed on 28 May 2009 in which Mr Hensler attested that on 19 November 2008 at 7.10 pm he served Mr Compton with a true copy of the bankruptcy notice to which was annexed details of interest claimed and a true copy of the judgment:
...by delivering them to PETER GEOFFREY COMPTON personally at: 28 BEACH DRIVE KILLCARE, in the State of New South Wales.
Mr Hensler stated in his affidavit that he identified the person served as the said Peter Geoffrey Compton:
... by reason of the following statements made at the time of service:
I said: "Is your name PETER GEOFFREY COMPTON?"
He replied: "Yes".
I then said: "Are you the person referred to in this Bankruptcy Notice as PETER GEOFFREY COMPTON?"
He replied: "Yes".
Annexed to the affidavit of service of bankruptcy notice are what are said to be true copies of the said bankruptcy notice and annexures. Prior to the hearing it had appeared that Mr Hensler may not be available if required for cross-examination as he had moved to Hong Kong. However he was located.
The applicant also relied on an affidavit of Mark Adam Stephenson sworn on 1 October 2009 and filed on 7 October 2009. In submissions counsel for the Comptons initially indicated that he had been instructed that this affidavit (and the similar affidavit in relation to service on Mrs Compton) had not been served on the solicitors for the Comptons. However the applicant tendered a copy of a letter from the Assistant Commissioner for Taxation to the solicitors for the Comptons dated 12 October 2009 which, among other things, enclosed by way of service the affidavits relating to service of bankruptcy notices sworn by Mark Adam Stephenson as well as copies of the affidavits of service of the bankruptcy notices sworn by Bernard Hensler. Counsel for the Comptons did not pursue the contention that the respondent's solicitors were not served with copies of Mr Stephenson's affidavits.
Mr Stephenson is the operations manager of the Process Serving Department of Newcomen Commercial Services. He attested that Mr Hensler had been employed by that organisation to perform duties as a process server for approximately three years up until February 2009. Mr Stephenson's understanding was that Mr Hensler left this employment to take up employment in Hong Kong.
Mr Stephenson attested that:
Immediately upon completion of service of an item, the process server is required to completed a 'Process Field Report'.
Annexed to his affidavit was what was said to be "a true copy of the 'Process Field Report'" completed by Mr Hensler "at the time of service" of the bankruptcy notice on Mr Compton in this matter. The process field report was completed to indicate that service on Mr Compton of a bankruptcy notice was effected on 19 November 2008 at 7.10 pm by personal service on a male. No details of any conversation or means of identifying the person were recorded on this form.
Mr Hensler and Mr Compton were both required for cross-examination. Mr Hensler's cross-examination took place on 21 October 2009 as he was visiting Australia at that time. The hearing was adjourned for cross-examination of Mr Compton and completion on 16 November 2009. Mrs Compton, who also claimed in an affidavit that she was not served with a bankruptcy notice, was also cross-examined. The parties agreed that the evidence of each of the witnesses should be evidence in each of the proceedings.
In this case there is a factual dispute between the parties on the issue of service of the bankruptcy notice. The applicant's case is that Mr Compton was personally served with the bankruptcy notice by Mr Hensler on 19 November 2008. Mr Compton denied that he was served with a copy of the bankruptcy notice as deposed to by Mr Hensler.
Mr Hensler is an experienced process server who, as at November 2008, had four years of experience. His evidence was that at that time he was serving 50 to 70 documents in the Central Coast area in a typical week. The procedure adopted was that he gave information to his boss about what happened in relation to each service and his boss drew up the affidavit accordingly. Mr Hensler then "signed off on it". In cross-examination Mr Hensler stated that he usually gave the information to his boss within 7 to 14 days of the service and that the affidavit would be written and signed on the day he provided the information.
Mr Hensler agreed that it would only be if "something unusual" occurred that the content of the affidavit of service, insofar as it referred to a conversation, would be amended. When it was put to him that what was in the affidavit was not a record of what he had told his boss had occurred in terms of a conversation, Mr Hensler explained: "We say exactly these words every service" and if the conversation was different then "wewill relate that information in the affidavit."
Mr Hensler stated that he specifically remembered attending a property at Killcare on the afternoon of 17 November 2008 (the day Mrs Compton was said to have been served), that he recalled the property he attended on that day and that he could describe how it appeared from the street.
When asked if he had been back to the property after he had effected service at that address on 17 November 2008, Mr Hensler replied that he had gone back again two days later (consistent with his evidence that he served Mr Compton on 19 November 2008). When questioned about his evidence of his recollection of service on Mrs Compton he explained that he had a "mental picture of each place" he had been to for his work, based on its address.
Mr Hensler stated that he could recall the conversations he had with both Mr and Mrs Compton. He agreed that not everything said was necessarily recorded in his affidavit and gave as an example that he had asked Mrs Compton if Mr Compton was at home and that she had told him that "he gets home after 6.30". Mr Hensler also said that while he did not have a photograph of Mr or Mrs Compton he had been to the house to serve one or both of the Comptons on an earlier occasion in a different matter.
Mr Compton's affidavit evidence was that he was not served with a copy of the bankruptcy notice as deposed to by Mr Hensler and also that at no time was he served with a copy of the statement of claim in the District Court proceedings that gave rise to the debt claimed by the DCT in the bankruptcy notice.
In cross-examination however, rather than making a positive assertion that he had not been served with a copy of the statement of claim in the District Court proceedings, Mr Compton stated that he could not recall being served with that document. He also said that he did not remember Mr Hensler giving him documents. When shown a copy of an affidavit of service of Gavin Bellamy sworn 20 May 2008 attesting to personal service on him at his home with a copy of the District Court statement of claim, Mr Compton's evidence was that he "honestly can't recall". When asked if that meant it did not occur or whether he just could not now remember, he said he "just can't remember." Mr Compton agreed that his position was not that he was not served with the statement of claim, but that to the best of his recollection he had not been served with it.
In response to the suggestion that it would be unlikely that he would forget being served with a court document because it was such an important document, Mr Compton stated: "I do not agree with that because I've got two businesses to run and, basically, I can't - since I can't remember getting it then obviously I didn't give it any attention." However, while not recollecting being served with the bankruptcy notice, he said if he had been served he would have been concerned and would have sought legal advice.
Mrs Compton gave evidence about the time that Mr Compton was at work. Such evidence went to whether Mr Compton was likely to be at home at 7.10 pm on 19 November 2008, the time at which Mr Hensler claimed to have served him with the bankruptcy notice. Mrs Compton's evidence was that her husband had "never worked til 6.30 at night", that "the shop closes at 7.00 pm on Sundays and 8.00 o'clock every other day of the week. So it means that, usually, he or my son aren't home till about 8.30".
Having read the affidavits and observed the deponents and heard their evidence in cross-examination, where there is a conflict in the evidence I prefer the evidence of Mr Hensler to that of Mr and Mrs Compton.
Mr Hensler showed a clear and consistent recollection of the events and circumstances of service. He is an independent witness and has not been shown to have any personal interest in fabricating his evidence. The manner in which he gave his evidence was confident and convincing.
Counsel for the respondent submitted that in circumstances where Mr Hensler was serving 50 to 70 documents a week, a delay of 12 days between the alleged date of service on Mr Compton and the preparation and swearing of the relevant affidavit of service was sufficient time to cast doubt on the accuracy of the matters deposed to by Mr Hensler. However Mr Hensler was not asked whether he made a contemporaneous record about the service of each document (as attested to by Mr Stephenson). He was able to answer in detail all the questions that were put to him. He explained that the words of service used in the affidavits of service in relation to each of the Comptons were based on the standard words they used every service. He was prepared to concede matters where he did not have actual knowledge or recollection of the facts, for example in relation to the format of the affidavit drawn up by his boss.
In isolation, Mr Hensler's claim that he remembered what he was doing on the afternoon (but not the morning) of 17 November 2008 may not seem particularly plausible, but Mr Hensler provided an explanation for his recollection of particular jobs based on having a mental picture of each place when told the address. He was not asked about his specific recollection of what he was doing on 19 November 2008.
Also, while Mr Hensler stated that he could describe how the Comptons' property appeared from the street, counsel for the Comptons declined to invite him to do so. Instead, he was given a document which apparently contained a picture of a house. Mr Hensler considered the picture and was able to state that it was not the Comptons' house, although there were some similarities in the type of brick and style of house. In re-examination he provided a description of the front of the Comptons' house.
Importantly, Mr Hensler stated in cross-examination that he had served the Comptons (or possibly just Mr Compton) previously at the Killcare address in a different matter. I am satisfied and I accept that he recollected the appearance of the Comptons' house and I accept his evidence that he attended at that house on both 17 and 19 November 2008 and personally served Mr Compton with the bankruptcy notice on 19 November 2008. Hence I reject the evidence of Mr Compton and, insofar as relevant, Mrs Compton, on that issue.
In that respect, I note that in cross-examination Mr Compton did not maintain his positive assertions that he was not served with either the statement of claim or the bankruptcy notice. Nor did he simply provide a qualification that his claim that he was never served was based on his best recollection. Rather Mr Compton said on several occasions that he could not "recall" being served. I am not satisfied on his evidence that Mr Compton was not served with the bankruptcy notice.
Two process servers, Mr Bellamy and Mr Hensler, swore that they served Mr Compton. He could not recollect either of these events. While he stated that he would have been concerned about receiving a bankruptcy notice and that he would have approached a legal practitioner to get advice had he been served with such a document, this contrasts with his evidence about whether it was unlikely he would forget being served with a court document because it was such an important document, in response to which he indicated that he did not agree with that because he had two businesses to run and, since he could not remember getting the statement of claim, obviously he did not give it any attention.
Counsel for the respondent submitted that Mrs Compton's evidence about when her husband got home, based on the hours the business was open, cast doubt on Mr Hensler's affidavit evidence that he served Mr Compton at 7.10 pm.
Mr Compton's evidence did not address this issue. Moreover, as counsel for the applicant pointed out, in the affidavit of service of the District Court statement of claim tendered in these proceedings, Gavin Bellamy swore that he served Mr Compton personally at 11.05 am on 10 May 2008 (a Saturday) at his home at Killcare. In addition, in an affidavit of service of the creditor's petition sworn on 18 June 2009, Wayne Stewart stated that he served Mr Compton personally at 11.25 am on 14 June 2009 (a Sunday) at his home at Killcare. Mr Stewart was not required for cross-examination.
Mrs Compton's evidence that Mr Compton was usually not home until 8.30 pm and never home at 6.30 pm was contrary to the sworn evidence of two process servers as to the time at which Mr Compton was served at his home (that is, in the morning on each occasion). In the absence of corroborative evidence, I do not accept that Mrs Compton's evidence on this matter supports the proposition that Mr Compton could not have been at home to have been served with the bankruptcy notice at 7.10 pm on 19 November 2008 as attested to in the affidavit of Mr Hensler.
As I am satisfied that Mr Compton was personally served with the bankruptcy notice on 19 November 2008, the basis of opposition to the petition in the notice of opposition filed on 11 August 2009 is not made out.
[4]
At the hearing on 16 November 2009 counsel for the Comptons submitted that the affidavits of search relied on by the applicants in each of the proceedings did not address all the matters required to be addressed under r.4.04 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (the Bankruptcy Rules).
Rule 4.04 is as follows:
(1) If a creditor's petition is founded on an act of bankruptcy mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the petition must also be accompanied by:
(a) an affidavit stating:
(i) that the records of the Court and the records of the Federal Court have been searched and no application in relation to the bankruptcy notice has been made; or
(ii) that an application was made in the Court or in the Federal Court, as applicable, for an order setting aside the relevant bankruptcy notice and the application has been finally decided; or
(iii) that an application was made in the Court or in the Federal Court, as applicable, for an order extending the time for compliance with the bankruptcy notice and the application has been finally decided; and
(b) an affidavit of service of the relevant bankruptcy notice.
(2) If an application mentioned in subparagraph (1) (a) (ii) or (iii) was made, a copy of the order finally deciding the application must be attached to the affidavit required by paragraph (1) (a).
The applicant submitted that this issue should have been raised in the notice of grounds of opposition to the application and pointed to the fact that counsel for the respondent had (properly) conceded that it was a matter that only came to his attention on the weekend prior to the adjourned hearing date. It was contended that the DCT had no prior notice of basis of the claim and, if it had done so, may have taken steps (if necessary) to amend any alleged defect.
I am satisfied on the evidence before me as to service of the bankruptcy notice on Mr Compton on 19 November 2008 and that he committed the act of bankruptcy alleged in the creditor's petition by failing to comply with the requirements of bankruptcy notice NN4237 of 2008 within the time specified. I am satisfied that, as stated in the creditor's petition, the date of the act of bankruptcy was 10 December 2008, which is within six months of presentation of the petition.
On the evidence before the court, I am satisfied with proof of the matters required by s.52(1) of the Act, including proof of matters stated in the petition; that the petition was presented in correct form for a debt of more than $2,000, with service of the petition; and with the fact that the debt on which the petitioning creditor relies is still owing. In that respect, the applicant filed fresh affidavits of debt and final search on 14 December 2009. The affidavit of final search disclosed as at 14 December 2009 that there was a further application for a sequestration order against Mr Compton filed in the Federal Magistrates Court, Adelaide Registry on 9 October 2009. Counsel for the applicant indicated that prior to delivery of judgment he would provide the court with further affidavits of final debt and final search. This has been done.
The debtor did not satisfy the court of his ability to pay his debts. In submissions his counsel drew the court's attention to the fact that Mr Compton had given evidence that he was in the process of seeking to sell his business and anticipated that a sale could be completed in a matter of weeks. This was not put on the basis that Mr Compton was able to pay his debts. It was sought that if a sequestration order be made, then the court should also stay all proceedings under the sequestration order for a period not exceeding 21 days.
A stay under s.52(3) is a stay of proceedings under a sequestration order and not of the sequestration order itself. I note that this request was made on 16 November 2009. Given the delay in judgment occasioned by the fact that written submissions from the parties were not filed until 7 and 14 December 2009 respectively, I am not persuaded that it is appropriate to grant a stay of proceedings under the sequestration order on the evidence before the court.
[7]
I certify that the preceding sixty-eight (68) paragraphs are a true copy of the reasons for judgment of Barnes FM
Parties
Applicant/Plaintiff:
D.C.T.
Respondent/Defendant:
P. Compton [2009] FMCA 1285
Legislation Cited (1)
Magistrates Court (Bankruptcy) Rules 2006
Cases Cited (7)
(2006) 153 FCR 428
(1988) 165 CLR 71
(2006) 228 CLR 409
(2000) 105 FCR 15
(2001) 110 FCR 561
(2007) 159 FCR 38
(2000) 98 FCR 377
AI Analysis
Outcomeplaintiff
Disposition:
Sequestration order made against the estate of Peter Geoffrey Compton; applicant creditor's costs taxed in accordance with the Federal Court Rules and paid from the estate; copy of order to be provided to Official Receiver within two days. Court noted date of act of bankruptcy as 10 December 2008 (Orders).
However each of the parties made post-hearing written submissions in relation to this issue. In all the circumstances, notwithstanding that the notice of opposition did not include this ground, I consider it appropriate to dispense with the strict requirements of r.2.06(2) of the Bankruptcy Rules insofar as that rule requires that a person who intends to oppose a petition must, at least three days before the date fixed for the hearing of the petition or with leave of the court at the hearing, file a notice in accordance with Form 5 stating the grounds of opposition, file an affidavit in support of the grounds of opposition, and serve the notices and supporting affidavit on the applicant.
The Comptons' contention was that the filing of an affidavit that addressed all the matters required by r.4.04 of the Rules was a requirement "made essential" by the bankruptcy legislation and that the DCT's failure to comply with it invalidated the petitions in both proceedings such that they should be dismissed.
In these proceedings the creditor's petition is founded on an act of bankruptcy mentioned in paragraph 40(1)(g) of the Bankruptcy Act and hence r.4.04 of the Bankruptcy Rules applies. The affidavit in question is the affidavit of Allison Serje affirmed on 28 May 2009 which accompanied the petition and relevantly stated:
(3) On 28 May 2009 I did search the records of the Federal Court of Australia and the records of the Federal Magistrates Court of Australia in relation to Bankruptcy Notice No. NN 4237/2008 issued on the application of the applicant creditor against the respondent debtor, dated 4 November 2008.
(4) It appears from my searches that the respondent debtor has not made an application to the Court to set aside the bankruptcy notice nor to extend the time for compliance with the bankruptcy notice.
The respondent contended that the wording of paragraph four of the affidavit of Ms Serje addressed subrules 4.04(1)(a)(ii) and (iii) of the Bankruptcy Rules but did not address subrule 4.04(1)(a)(i) in that the search affidavit did not disclose whether an "application" generally had been made in relation to the bankruptcy notice (that is, an application other than an application to set aside the bankruptcy notice or to extend the time for compliance with the bankruptcy notice). It was suggested that while it was not possible to state exhaustively the types of applications that might be made that would fall outside subrules 4.04(1)(a)(ii) and (iii), they would include applications alleging abuse of process or for administrative review of a relevant administrative decision leading to the issue of the bankruptcy notice.
Counsel for the Comptons conceded that he could identify no case that had considered either this specific contention or, indeed, any other non-compliance with r.4.04, but submitted that the court would be assisted by cases dealing with general principles. It was contended that the "starting point" was Adams v Lambert(2006) 228 CLR 409; [2006] HCA 10 in relation to whether a defect was a "formal defect or an irregularity" liable to be cured under s.306 of the Bankruptcy Act and hence not such as to give rise to invalidity unless the court was of the opinion that substantial injustice had been caused by the defect or irregularity that could not be remedied by an order of the court.
The Comptons conceded that the "defect" in the search affidavit did not cause substantial injustice to either of them and that no application within r.4.04(1)(a)(i) had in fact been made in either matter that would have been disclosed by a search affidavit had it been worded so as to address all the matters required under r.4.04.
It was said, nonetheless, that there was an issue as to whether the defect was a mere "formal defect or an irregularity" or whether it was a failure to meet a requirement "made essential" by the legislation in the manner considered in Adams v Lambert, applying Kleinwort Benson Australia Limited v Crowl(1988) 165 CLR 71; [1988] HCA 34.
Reference was made to the fact that in Adams v Lambert, the High Court explained (at [26]) that determining whether a particular requirement of the legislation was "made essential" required a process of statutory construction, as follows:
The question of construction raised by the words "a formal defect or an irregularity" is one to be decided by reading s 306 in the context of the whole Act, informed by the general purpose of the legislation, and the particular purpose of the provisions relating to bankruptcy notices. It is similar to the question that, in former times, would be explained by asking whether a statutory requirement was mandatory or directory. In Project Blue Sky Inc v Australian Broadcasting Authority it was said: "A better test ... is to ask whether it was a purpose of the legislation that an act done in breach of [a] provision should be invalid ... In determining the question of purpose, regard must be had to `the language of the relevant provision and the scope and object of the whole statute.'" (Footnotes omitted)
It was submitted that the general purpose and object of the bankruptcy legislation was to create a regime for the fair and efficient disposal of bankruptcy proceedings, among other things, and that the legislation (consisting of the Act and the subordinate and other legislation enacted in support of it (including the Bankruptcy Rules)) set out a detailed procedure that must be followed by creditors (and respondents) before a creditor's petition would be granted based on an act of bankruptcy under s.40(1)(g) of the Act.
In particular, it was submitted that r.4.04 (misdescribed as "regulation 4.04" in the respondent's submissions) contained requirements that were said to be "self-evidently" aimed at ensuring that a creditor made appropriate enquiries to confirm that the respondent had not taken any of the steps available at law to challenge or postpone the consequences of the bankruptcy notice that had been served, and that the creditor was prevented from proceeding in reliance on a bankruptcy notice in circumstances where appropriate enquiries had not been made as to whether the debtor had taken steps to challenge the bankruptcy notice.
On this basis, it was said that r.4.04 protected respondents and placed on the applicant creditor the burden of establishing that the respondent debtor had not taken any of the steps available to it to avoid bankruptcy. It was submitted that the suggested defect was analogous to the defect considered in Commissioner of Taxation v Kelly(2001) 110 FCR 561; [2001] FCA 844, in which the creditor had failed to refer in its bankruptcy notice to the jurisdiction of the Federal Magistrates Court, as required by the then recently amended regulations. In that case Katz J held that the notice was a nullity as it failed to meet a requirement made essential by the Act, following the approach of Heerey J in Atkinson v Oakleigh Holdings Pty Ltd(2000) 105 FCR 15; [2000] FCA 1547 at [16]:
I have come to the same conclusion as Moore J but prefer to do so on the basis of s 48(2). As to the first basis, since the sole criterion of a bankruptcy notice now is that it "must be in accordance with the form prescribed by the regulations" (s 41(2)), and the sole raison d'etre of the amending regulations was to require a notice to refer to the Federal Magistrates Court as well as the Federal Court, it is not easy to see why this is not a requirement "made essential by the Act": Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71 at 79. A court is not at liberty to hold that some matters expressly required to be stated are essential but others, also the subject of express requirement, are not: Bendigo Bank Ltd v Williams [2000] FCA 482; (2000) 98 FCR 377 at 389.
Neither Kelly nor Atkinson v Oakleigh Holdings are directly in point, as they relate to whether a bankruptcy notice was a nullity as failing to meet a requirement of the Bankruptcy Regulations.
The applicant cited no authority in relation to the consequences of a failure to comply with the Bankruptcy Rules (which are Rules of Court not regulations made under the Bankruptcy Act) in an affidavit relied on in support of the creditor's petition, as distinct from a failure to comply with the Act or Regulations in a bankruptcy notice or creditor's petition.
I note that in Hussain and Another v King Investment Solutions Pty Ltd(2006) 153 FCR 428; [2006] FCA 905, in the context of considering the provisions of the Federal Magistrates Court Rules that were predecessors to the requirements now found in the Federal Magistrates Court (Bankruptcy) Rules, Gyles J pointed out (at [25]) that:
There is a critical difference between rules of court, on one hand, and statutory obligations on the other.
Gyles J went on to state (at [25]) that there was "always an overriding power in the Court to dispense with the effect of rules of court". His Honour rejected a contention that a failure to serve an application to set aside a bankruptcy notice within three days, as required under the rules of court, rendered the application a nullity. Similarly, I am of the view that it is open to me to dispense with the requirement of strict compliance with the Bankruptcy Rules.
Counsel for the applicant referred to the fact that in Kidney v Fitzpatrick[2007] FMCA 943 at [34] - [35], Mowbray FM referred to the fact that in a case where there had been "substantial compliance" with the Rules in an affidavit, his Honour could see no prejudice to the respondent if he were to dispense with full compliance with the rule in question, as matters "concerning the bankruptcy notice and the application to set it aside were very much known to the respondent and to the Court". On that basis Mowbray FM found that it would "serve no useful purpose" for the court to adjourn for the filing of further affidavits covering the matter which had recently been before it.
In de Robillard v Carver(2007) 159 FCR 38; [2007] FCAFC 73 at [95] the Full Court of the Federal Court rejected a "contention that proceedings commenced by filing the creditor's petition were incurably flawed and beyond jurisdiction because of non-compliance with r.4.02 of the Bankruptcy Rules" (in that case the Bankruptcy Rules of the Federal Court, which are in substance in the same form as the Bankruptcy Rules of the Federal Magistrates Court). That contention had been put on the basis that there was no affidavit of service of the bankruptcy notice accompanying the creditor's petition when presented as required under r.4.04(1)(b), and no affidavit of service of the bankruptcy notice served five days before the day fixed for hearing.
As in this case, such arguments had not been raised in the (amended) notice of grounds of opposition, although they were included in written submissions filed after the hearing. The primary judge had ruled that he would not permit reliance upon the grounds. In any event the Full Court of the Federal Court observed that these matters did not go to the court's jurisdiction and did not provide any basis upon which to decide the appeal in the applicant's favour.
In this case, the only "defect" identified in Ms Serje's affidavit is that she did not state that "no application in relation to the bankruptcy notice has been made". In substance the affidavit complied with r.4.04 of the Bankruptcy Rules in that Ms Serje attested that she undertook the necessary court searches and that those searches showed that there was no application to the court, at least no application to set aside the bankruptcy notice and no application extending the time for compliance with the bankruptcy notice.
Counsel for the Comptons conceded that no applications had been made by Mr Compton in relation to the bankruptcy notice and that any defect in the affidavit of search did not cause substantial injustice.
In this case there has been substantial compliance with r.4.04(1) of the Bankruptcy Rules. In any event, given the concession by the respondent that no applications had been made and that any defect in the affidavit of search did not cause substantial injustice, insofar as necessary I would dispense with full compliance with r.4.04(1)(a)(i) on the basis that there has been no prejudice to the respondent.
Moreover, if the failure to use the precise language of r.4.04(1)(a)(i) is a "defect or irregularity" in proceedings under the Bankruptcy Act (a matter on which I was not addressed) and insofar as s.306 is applicable to a "defect" in an affidavit consisting of non-compliance with the Rules, while the absence of substantial injustice is not determinative of whether a defect is a formal defect or irregularity in the sense considered in Adams v Lambert and thus able to be cured within s.306, I am satisfied that any defect in the affidavit of search is clearly a formal defect or irregularity being one of form and not substance and not a basis on which to invalidate the petition.
Hence neither basis for opposition to the creditor's petition is made out.
Insofar as this might be taken to be an application for an adjournment, I am not persuaded that it is in the interests of the parties or the administration of justice that there be a further adjournment, given that the passage of time has, in effect, allowed the time sought by Mr Compton for sale of the business. I also note that while the debt that was the subject of the creditor's petition was (after allowance for a credit/payment of $1,050) over $65,000, the records of the creditor showed that a significant further amount of over $130,000 was owed to the DCT by the respondent debtor. The submissions made in relation to the possible proceeds of sale of a property are not such as to establish that Mr Compton would be likely to be able to meet the entirety of the debts owed to the DCT. There is no evidence as to the nature or extent of any other indebtedness.
Nor is the material before the court such as to satisfy me that for other sufficient cause a sequestration order ought not to be made on any of the bases discussed above.
In all the circumstances, being satisfied that the respondent committed the act of bankruptcy alleged in the petition and with proof of the other matters required by s.52 of the Act, a sequestration order should be made against the estate of Peter Geoffrey Compton with the usual order as to costs.