3.1 Relevant principles
38 Subject to one important caveat explained below, the principles to be applied in determining the validity of a bankruptcy notice were common ground between the parties.
39 First, the courts have required strict compliance with the legislative requirements for a bankruptcy notice. That approach has been upheld having regard in particular to the seriousness of the consequences of non-compliance for the debtor and potentially for the rights and obligations of others: Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 at 41 [22] (Black CJ, Heerey and Sundberg JJ). As Deane J stated in an oft-cited passage in Kleinwort Benson Australia v Crowl (1988) 165 CLR 71 ('Kleinwort') at 81-82:
"It has long been a fundamental precept of the law of bankruptcy that "a bankruptcy notice, which is the foundation of a bankruptcy, attended as a bankruptcy is with penal consequences, is a matter in which great strictness is required": per Cozens-Hardy M.R., In re A Judgment Debtor, 530 of 1908 (50); see also James v Federal Commissioner of Taxation (51). A defect in a bankruptcy notice will invalidate it "except in the case of a merely formal defect": per Vaughan Williams L.J., In re OCS (A Debtor); Ex part The Debtor (52), see also In Re a Debtor No. 21 of 1950; Ex part the Debtor v Bowmaker Ltd (53). If a defect in a bankruptcy notice is other than a formal one, the notice itself is defective and failure to comply with it does not constitute an act of bankruptcy.
It is true that the strictness of the above rules leaves open the possibility of abuse by unscrupulous debtors. That is, however, an unavoidable concomitant of the protection of ordinary people faced with the threat of being made bankrupt."
40 Secondly, as Mason CJ, Wilson, Brennan and Gaudron JJ held in Klienwort 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". The present case is said to be one that falls in the latter category.
41 Alternatively, if a defect or irregularity in a notice is formal only, s 306 of the Act provides that proceedings under the Act will not be invalid unless the Court considers that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court. A "formal defect or an irregularity" is one that could not reasonably mislead the debtor. No contention is made in the present case that s 306 may apply.
42 Thirdly, where a bankruptcy notice is invalid, the Court has no discretion. The notice must be set aside. Thus, after explaining that, while not express, the power to set aside a bankruptcy notice derives from s 30 of the Act, Emmett J pointed out in Australian Securities and Investments Commission v Forge (2003) 133 FCR 487 at 492-493 that:
" …the Act gives no general discretion to set aside bankruptcy notices that are valid in form and not an abuse of process. The Act permits the issue of a bankruptcy notice and, if the notice is valid, prescribes the consequences to the bankrupt of non-compliance. The grounds upon which a bankruptcy notice may be set aside must relate to the form or content of the notice, service of the notice or the existence of the debt upon which the judgment, and, in turn, the notice, is founded."
43 Fourthly, in cases where the notice could reasonably mislead the debtor as to what is required, "the notice is a nullity whether or not the debtor is in fact misled": Klienwort at 80. Thus, for example, in James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644 the Court (Williams, Kitto and Taylor JJ) held the bankruptcy notice invalid on the ground that it was "capable of misleading the debtor" (emphasis added) stating further that:
"The court cannot inquire whether the debtor has in fact been misled or not. In this case it is probable that he was not misled. It is sufficient that he could be misled."
44 In that case, the notice was found to be misleading in its terms on the basis that the notice did not accord with the terms of the judgment in favour of the three creditors and was capable of misleading the debtor as to the manner in which he might secure or compound the debt to the creditors' satisfaction.
45 In the fifth place, notwithstanding that the test for determining whether a bankruptcy notice is misleading is an objective one, the question of whether the notice is misleading is not determined in a vacuum. Rather, the parties were in agreement in principle that the Court may have regard to facts extraneous to the notice itself. Thus, for example, in Cosenza v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] FCA 85 at [33] Mansfield J, citing Weinberg J in Northam v Commonwealth Bank of Australia [1999] FCA 544 at [22] said that "a bankruptcy notice must, while being read strictly, also be read sensibly, and not perversely. It must also be read as a whole, and be read in light of facts extraneous to the notice itself".
46 The parties were not, however, in agreement as to whether the fact that the applicant was an experienced corporate insolvency practitioner was a matter to which the Court could have regard in determining if the Bankruptcy Notice was capable of misleading the debtor. I deal with this submission later in my reasons.
47 Finally, the applicant relied upon the decision of Lander J in Genovese v BGC Constructions Pty Ltd (2005) 215 ALR 440 in support of his contention that a notice may become capable of misleading a debtor by reason of circumstances arising after it was first issued and served. In that case, multiple bankruptcy notices had been issued and served by the same creditor in relation to the same debt. Lander J held, in line with longstanding authority, that a creditor is entitled to issue a second bankruptcy notice to cure a defect in a previous bankruptcy notice provided that the creditor elects as to the bankruptcy notice upon which the creditor intends to rely in order to "avoid creating confusion in the debtor's mind which might lead the debtor to either pay an incorrect amount or a correct amount to an incorrect party." (at 455, [106]). However, that aspect of the decision was concerned with the question of whether the issue and service of multiple bankruptcy notices constituted an abuse of process, as were the authorities relevantly cited by Lander J, namely, Abignano v Wenkart [1998] FCA 1468 and Re Fredericke and Whitworth; Ex parte Hibbard [1927] 1 Ch 253. No allegation is made in the present case that the multiple acts of serving the Bankruptcy Notice constituted an abuse of process. As such, these decisions are not directly on point. A similar argument to that sought to be put by the applicant here was, however, considered by Dowsett J in Romano v Peldan [2003] FCA 767. In that case, in addition to alleging that the issuance of two bankruptcy notices constituted an abuse of process, it was alleged that their dual existence was misleading. That argument was rejected by Dowsett J at [16] simply on the facts of the case.
48 In short, there does not appear to be any real consideration in the authorities of the applicant's contention that a bankruptcy notice may be invalid on the ground that it has become misleading as to the time within which compliance is required by reason of events postdating the valid issue and service of the notice, namely service on a second and later day. However, given that the time within which the Bankruptcy Notice must be complied with is defined by reference to the external event of service, the fact that no issue was taken by the respondent regarding the point and the fact that the applicant's contention arguably receives some support from the authorities, I proceed on the basis that the applicant's contention is capable of success as a matter of principle.