Foyster v ANZ Banking Group Ltd

EX TEMPORE REASONS FOR JUDGMENT (NO. 1) 1 Objection is taken to the filing of an affidavit on behalf of the Debtor, in which the Debtor seeks to raise a counter-claim or cross-claim which would satisfy the requirements of section 40(1)(g) of the Bankruptcy Act 1966 (Cth) ("the Act"), when added together with other cross-claims or counter claims which have already been the subject of affidavits. 2 An act of bankruptcy is committed inter alia under section 40(1)(g) where a creditor serves on a debtor a bankruptcy notice and the debtor does not either comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt that could not have been set up in the action or proceedings in which the judgment was obtained.

3 In an ideal world, where a bankruptcy notice is filed and served and a debtor wishes to set up a counter-claim, set-off or cross-demand, the Court would be able to deal with it immediately. In the real world, however, that is not possible. Hence, section 41(7) has been introduced into the Act and provides as follows: "Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice, the debtor applies to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has a counter-claim, set-off or cross-demand as is referred to in section 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied the debtor has such a counter-claim, set-off or cross-demand, that time is deemed to have been extended […] until the day on which the Court determines whether it is so satisfied." 4 There are thus two quite separate and distinct questions which arise in relation to proceedings involving an alleged counter-claim, set-off or cross-demand. The first is whether the Court is satisfied that the debtor has one. The second is the question of deferring the time for compliance, while the Court makes such a determination, to ensure that no act of bankruptcy is committed during the course of the hearing or the Court's deliberations. 5 An affidavit has been filed on behalf of the Debtor alleging the existence of a counter-claim, set-off or cross-demand. That affidavit refers to proceedings in the Supreme Court of New South Wales in which a claim is made for some $10 million. The amount of the debt claimed in the bankruptcy notice is less than $50,000. It has not been suggested, as I understand the contentions, that that affidavit did not have the effect contemplated by section 41(7). Indeed last week, I embarked on the hearing of the question of whether or not the Court is satisfied that the Debtor does have a counter-claim, set-off or cross-demand, such as is alleged in the original affidavit. 6 I am part heard in that hearing. However, last week, I adjourned the hearing of the matter because of perceived inadequacy of the evidence of the Debtor in relation to the claim raised in the Supreme Court. The affidavit now sought to be read, however, raises an additional counter-claim, set-off or cross-demand, quite independent of and different from, the claims that are asserted in the proceedings in the Supreme Court. 7 If there had been no affidavit filed, which satisfied the requirements of section 41(7), there would have been no automatic extension of time under that provision. However, once the statutory stay provided for in section 41(7) comes into play, there does not appear to me to be any reason in principle why the Debtor should not be entitled to satisfy the Court as to any matter within section 40(1)(g). In Re Brink; ex parte Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135, which was cited with approval by the Full Court in Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91, Lockhart J indicated that, upon the hearing of a matter under section 41(7), the Court has before it the initial affidavit which brings section 41(7) into play. There may, of course, be no other evidence. On the other hand, there may be a great deal of evidence. That will depend upon the circumstances of each case. The Court has power to permit the debtor to supplement his case by additional evidence. 8 The initial affidavit filed under section 41(7) operates to extend the time for compliance with the requirements of a bankruptcy notice until the Court determines whether it is satisfied that a debtor has the requisite counter-claim, set-off or cross-demand. Although the mere filing of the requisite affidavit brings the statutory extension automatically into play, the Court thereafter controls the matter. The subsection recognises that the Court may not be able to hear the matter immediately. It may not be convenient to do so, or the case may be complex and require that directions be given to both parties to define the issues and as to the giving of evidence. The filing of the affidavit operates as a statutory injunction to preserve the status quo until the Court determines the matter, ensuring that in the meantime, there is no act of bankruptcy - per Lockhart J at 141 to 142. 9 In Re James; ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183, the debtors filed, out of time, an affidavit setting out the facts upon which they would rely to show a relevant cross claim, cross demand or cross action. Hill J observed (at p 189) that that affidavit, while it might be read to expand matters in an affidavit otherwise complying with section 41(7) filed in time, could not be used to supplement any deficiency where no sufficient affidavit had been filed within the terms of section 41(7). However, those observations, it seems to me, are concerned with the effect of section 41(7) and the "statutory injunction", as Lockhart J calls it, to preserve the status quo. I do not consider that they are concerned with the question of whether or not the Court is satisfied that there is a relevant cross claim, cross demand or counter claim. 10 In the circumstances, I consider that it is appropriate, subject to admissibility as a matter of form, that the Debtor be permitted to read the affidavit to which objection was taken. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.