Consideration
10 As noted above, s 41(2) of the Act requires a bankruptcy notice to be in the form prescribed by the regulations. The form prescribed by the regulations is Form 1 (reg 4.02(1)). The bankruptcy notice served on Ms Malek did not comply with Form 1 because the note to par 7 of Form 1 was wholly omitted.
11 Understandably, neither party contended that a bankruptcy notice which wholly omits the note to par 7 nonetheless substantially complied with Form 1 within the meaning of s 25C of the Acts Interpretation Act (see Adams v Lambert (2006) 225 ALR 396 at [22]). For this reason the critical issue to be determined on this appeal is whether s 306 of the Act operates to validate the bankruptcy notice served on Ms Malek.
12 It is plain that the bankruptcy notice served on Ms Malek suffered from a defect or irregularity; a note forming part of the prescribed form was omitted. It is therefore necessary to determine whether that defect or irregularity was "a formal defect or an irregularity" within the meaning of s 306 of the Act.
13 In Adams v Lambert 225 ALR at [26]-[27] the High Court observed:
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'".
If, as in the present case, what is in question is an error in the form of a misdescription of a statutory provision, then a consideration of the general purpose of the Act, and the particular purpose of the legislative scheme relating to bankruptcy notices, leads readily to a conclusion that if the error could reasonably mislead a debtor as to what is necessary to comply with the notice it is not merely a formal defect or irregularity. (Citation omitted)
14 As mentioned above, in Boylan v Farthing Finn J gave consideration to a bankruptcy notice which was relevantly indistinguishable from the bankruptcy notice served on Ms Malek. His Honour had regard to the following factors in deciding that the bankruptcy notice was saved by s 306 of the Act. First, his Honour (at [17]) placed weight on par 9 of the bankruptcy notice which explicitly warns the debtor of possible limitations in the information in par 7. Secondly, his Honour (at [18]) observed that the omitted information purported to elaborate and to exemplify what is contained in par 7(b) and was thus of a subsidiary or secondary character to that subparagraph and not essential in its own right. Thirdly, his Honour (at [19]) concluded that the information contained in the note was not of such a character that its omission could reasonably mislead a debtor as to what was necessary to be done to comply with, to extend, or to contest the notice.
15 The appellant did not contend that the High Court decision in Adams v Lambert suggests that the decision of Finn J in Boylan v Farthing should now be seen to be affected by an error of principle. Rather the appellant argued that this Court, after considering the purpose of the Act and evaluating the significance of the omission of the note in the circumstances of this case, should reach the opposite conclusion to that reached by Finn J.
16 The appellant advanced the following submissions:
16. Paragraph 7 requires the debtor to make a crucial choice between complying with the bankruptcy notice or not complying by way of an application under s 41(7). The choice is critical for the debtor because as stated above if her application is unsuccessful there is no power to extend time for compliance and the debtor will have committed an act of bankruptcy.
17. The notes to Paragraph 7(b) in the prescribed form significantly lessen the risk for a debtor.
18. A debtor who neglected or overlooked a counter-claim, set off or cross demand at trial may on reading the relevant notes decide not to make the application to the Court referred to in paragraph 7 and may otherwise comply with the bankruptcy notice.
19. A debtor who neglected or overlooked a counter-claim, set off or cross demand at the trial but without the benefit of the relevant notes may proceed to make a futile application to the Court referred to in paragraph 7 and thereby commit an act of bankruptcy.
17 Whether the admitted defect in the bankruptcy notice served on Ms Malek was "a formal defect or an irregularity" within the meaning of s 306 of the Act depends upon whether the Act discloses an intention that a bankruptcy notice which omits the prescribed note to par 7 should be invalid. This question is to be determined by reference to the language and purpose of the relevant provisions of the Act and the scope and object of the Act as a whole.
18 Plainly the legislature intended that a creditor who seeks to place reliance on an act of bankruptcy under s 40(1)(g) should serve on the debtor a bankruptcy notice in the prescribed form. However, it is not contentious that s 306 has an operation in respect of bankruptcy notices. Some defect in a bankruptcy notice will therefore be compatible with the validity of the notice. Where, as in this case, it is not contended that any injustice has been caused by the defect, a defect compatible with validity is a defect which, having regard to the intention of the legislature and the significance of the defect seen in the context of the notice read as a whole, is appropriately characterised as "a formal defect or an irregularity". A defect will not be characterised as "a formal defect or an irregularity" if it could reasonably mislead a debtor as to what is necessary to avoid the commission of an act of bankruptcy. Nor will it be appropriately so characterised if, for any other reason, the Act is to be understood to render the inclusion of the note an essential requirement of a valid bankruptcy notice.
19 In reaching a judgment as to whether a bankruptcy notice in the form of the notice served on Ms Malek was capable of misleading a debtor about what it was necessary for him or her to do to avoid an act of bankruptcy, it is necessary to identify the nature and significance of the information of which the debtor was deprived by reason of the omission of the note to par 7. Paragraph 7 of the bankruptcy notice itself advises a debtor that the debtor can file an application for an order to set aside the notice on the specific grounds that he or she had a counter-claim, set-off or cross demand in an amount equal to or exceeding the amount specified in the notice that he or she "could not have set up" in the proceeding in which the relevant judgment was obtained. It is of significance that par 7(b) uses the language of s 40(1)(g) of the Act. That language is neither technical nor arcane. The prescribed note to par 7 advises the debtor that a counter-claim, set-off or cross demand that "could not have [been] set up" in the relevant proceeding is one that could not have been raised in the proceeding because of a "legal obstacle". This advice adds little, if anything, of value to the information conveyed by par 7. Similarly, the note advises a debtor that if the debtor "simply neglected or overlooked the matter" he or she will not be able to show that he or she "could not have set up" the counter-claim, set-off or cross demand. This advice similarly adds little of value to the information contained in par 7. The statutory expression "could not have set up" is itself inconsistent with mere failure to set up.
20 Moreover, as Finn J observed in Boylan v Farthing, par 9 of the bankruptcy notice explicitly warns a debtor that the information in par 7 is a summary only, and not a complete statement of the relevant law. The word "warning" in capital letters and large, bold type face immediately above par 9 renders it unlikely that a debtor would pay attention to par 7 but overlook par 9. Additionally, in the bankruptcy notice served on Ms Malek, the unexplained star symbol at the end of subpar 7(b) might be expected to have reinforced the message of par 9 that it might be unwise to rely on the information conveyed by the subparagraph. We do not accept that the unexplained star symbol could, of itself, reasonably have misled a debtor about what it was necessary for him or her to do to avoid an act of bankruptcy.
21 We conclude that the omission of the note to par 7 in the bankruptcy notice served on Ms Malek did not have the consequence that the notice could reasonably have misled a debtor as to what was necessary to avoid the commission of an act of bankruptcy. We turn to consider whether, nonetheless, the Act or regulations disclose an intention that the inclusion of the note is a requirement of a valid bankruptcy notice.
22 It seems to us that the format of Form 1 suggests against a legislative intention that inclusion of the note is critical to the validity of a bankruptcy notice. Form 1 requires the note to be in a smaller typeface than the body of the notice and without emphasis of any kind; that is, presented without the use of bold or italic typeface and without underlining (see reg 4.02(2)). This format is consistent with legislative recognition of the subordinate significance of the note when compared with the substantive paragraphs of Form 1. Moreover, as discussed above, we are not satisfied that the note to par 7 is calculated to convey significant information to a debtor that is not conveyed by par 7 itself.
23 We conclude that the defect in the bankruptcy notice served on Ms Malek was a formal defect or irregularity within the meaning of s 306 of the Act. The Federal Magistrate therefore correctly dismissed Ms Malek's opposition to the creditor's petition. The orders appropriate to be made are as follows:
- The appeal be dismissed.
- The creditor's costs to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Branson, Conti and Siopis.