Prudential-Bache Securities (Australia) Ltd v Warner

Federal Court of Australia|1999-08-13|Before: Emmett J

1 I have before me a creditor's petition under the Bankruptcy Act 1966 ("the Act") presented by Prudential-Bache Securities (Australia) Ltd ("the Petitioning Creditor"). By the petition, the Petitioning Creditor seeks a sequestration order in respect of the estate of Dan Warner ("the Debtor"). The petition was presented on 3 May 1999 and was first returnable before a registrar on 16 June 1999. On that day, on the application of the Petitioning Creditor, the petition was adjourned to 9.15 a.m. on 7 July 1999.

2 The petition alleges an act of bankruptcy under section 40(1)(g) of the Act, consisting of failure by the Debtor to comply, on or before 22 March 1999, with the requirements of a bankruptcy notice served on 1 March 1999. On 7 July 1999, the petition came before a registrar of the Court. The registrar was concerned whether, in circumstances where it was not signed by or on behalf of the Official Receiver, the so-called bankruptcy notice was a valid bankruptcy notice. The registrar therefore adjourned the petition again, with a view to a hearing before a judge on the question of whether there was a valid bankruptcy notice upon which the petition could be based. The petition has now been referred to me for hearing.

3 After service of the purported bankruptcy notice, the solicitors for the petitioning creditor received a letter from the Debtor saying, inter alia, the following: "I have no assets to speak of and a bleak financial future while facing these debts. In some ways it would be better for me to go through bankruptcy. It would erase the $22,348 debt that hangs over my head from creditors and would eliminate all court claims against me by Prudential-Bauche [sic]. If you do decide to proceed, I will appeal the decision on which your bankruptcy claim is based. I may or may not win, but as you can see I do not have anything to lose." However, the Debtor did not in that correspondence raise any question concerning the lack of signature by the Official Receiver, or any other irregularity in relation to the so-called bankruptcy notice. 4 The Debtor did not appear before me when the matter was first called on for hearing on 23 July 1999. After argument on that day, I adjourned the hearing to 29 July 1999. On that day, Mr Johnston, a solicitor, appeared for the Debtor, although no appearance was filed. I indicated to Mr Johnston that there was a question about the validity of the bankruptcy notice. I then adjourned the further hearing of the petition to today. Mr Johnston appeared before me again today but indicated that he had no instructions to file an appearance or to make any submissions on behalf of the Debtor. I am satisfied, in the circumstances, that the Debtor is aware of the nature of the issue raised before me and was aware of and given the opportunity to appear at the adjourned hearing of the petition today. 5 I am satisfied as to the matters alleged in paragraphs 1, 2 and 3 of the petition. I am satisfied as to service of the petition and to the fact that the debt on which the Petitioning Creditor relies is still owing. I am also satisfied that a document purporting to be a bankruptcy notice was served on the Debtor on 1 March 1999. However, an act of bankruptcy was committed by the Debtor under section 40(1)(g) as alleged in the petition only if the document served on that day was a "bankruptcy notice under the Act". 6 Section 40(1)(g) of the Act relevantly provides that a debtor commits an act of bankruptcy: "if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

(i) where the notice was served in Australia - within the time specified in the notice; or

(ii) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service;

comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim [as described in section 40(1)(g).]"

7 Section 41 of the Act relevantly provides as follows:

"(1) An Official Receiver may issue a bankruptcy notice on the application of a creditor… (2) The notice must be in accordance with the form prescribed by the Regulations." Regulation 4.02(1) provides that, for the purposes of section 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed. Regulation 1.03(2) provides that a reference in the Regulations to a form of a specified number is a reference to the form of that number in Schedule 1. Schedule 1 contains a form of bankruptcy notice. At the end of the form is a box as follows:

FOR OFFICIAL USE ONLY Dated this (date) day of (month) (year) This notice was issued by the Official Receiver (or delegate or an officer authorised by the Official Receiver) for the Bankruptcy District of: address of Official Receiver: (Signature or stamp of Official Receiver or delegate or authorised officer)

8 Regulation 4.01 made under the Act relevantly provides as follows:

"(1) In order to apply for the issue of a bankruptcy notice, a person must lodge with the Official Receiver: (a) a duly completed draft bankruptcy notice; and (b) one of the following documents in respect of the final judgment or final orders specified by the person on the approved form: ……………………………… (c) a copy of the draft bankruptcy notice for the Official Receiver's records and sufficient additional copies of the draft bankruptcy notice for service and annexure to any required affidavits of service. (2) If documents are lodged with the Official Receiver in accordance with sub-regulation (1), he or she must sign (by hand or by facsimile reproduction) and date the copies of the bankruptcy notice lodged in accordance with paragraph (1)(c), and return to the applicant the additional copies referred to in that paragraph." 9 The document served on the Debtor contained no signature or stamp of the Official Receiver or his delegate or authorised officer, as contemplated by the words in parenthesis in that part of the form which I have just set out. I shall say something more about the circumstances of the issue of the document shortly. 10 In Re O'Sullivan; Ex parte Bank of New Zealand (1991) 30 FCR 112, Foster J considered a similar question to that presently before me, which arose under the Act prior to the amendments made in 1996. At that time, section 41 was in the following terms: "(1) A bankruptcy notice: (a) shall be in accordance with the prescribed form; and (b) shall be issued by the registrar." At that time, Rule 7 of the Bankruptcy Rules 1968 relevantly provided as follows: "7(2)(b) At the time when the application (for issue of a bankruptcy notice) is filed, the applicant shall furnish the registrar, for signature and stamping by the registrar, so many copies of the form of bankruptcy notice as are required… (5) Where the registrar is satisfied that application has been duly made to him for the issue of a bankruptcy notice and that the copies of the form of bankruptcy notice furnished to him in accordance with paragraph (2)(b) are in order for signature, the registrar shall sign and stamp each of those copies and return them to the applicant. (6) Where the registrar issues a bankruptcy notice, the applicant shall file a copy of the notice." 11 Foster J observed that the Act required that a bankruptcy notice be "issued" by the registrar before it becomes a bankruptcy notice. The Act also provided, in section 14A, that the registrar may stamp bankruptcy notices which he issued. Apart from that, the Act was silent as to what would amount to, or what would be involved in, the "issue" of a bankruptcy notice by the registrar. However, his Honour considered that Rule 7 was intended to prescribe and define the process of issuing bankruptcy notices by the registrar. His Honour considered that the requirement that the registrar sign and stamp the bankruptcy notice was not in addition to the act of issue but that that requirement, together with the requirement that the bankruptcy notice be returned to the applicant, was itself the act of issue. 12 If his Honour's conclusion is correct, I do not consider that there is any material difference between the provisions of the Act and Regulations presently in force when compared with the provisions under consideration by his Honour. The bankruptcy notice in question before his Honour was signed by the registrar, but did not bear the appropriate stamp. It was apparently conceded by counsel for the petitioning creditor in that case that authentication was essential to the act of issue by the registrar but that authentication could be achieved by signature alone. The contention was that whereas no authentication would be an invalidating defect, incomplete authentication would only be a formal defect or irregularity.

13 However, his Honour considered that the defect went to the very act of issue and that there was no issue at all. Accordingly, his Honour considered that, since section 41(1) of the Act required a bankruptcy notice to be "issued" by the registrar, there was, in the case before him, no bankruptcy notice. His Honour held, therefore, that the non-compliance with the bankruptcy notice complained of in the petition before him had not been proved to the satisfaction of the Court and his Honour therefore dismissed the petition. In particular, his Honour did not consider that the deficiency in the bankruptcy notice was a formal defect or an irregularity within the meaning of section 306 of the Act.

14 Under section 306, proceedings under the Act are not invalidated by a formal defect or an irregularity unless the Court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of the Court. There has been no suggestion that any substantial injustice has been caused by the deficiency in the present case. Further, the issue of a bankruptcy notice is a proceeding under the Act. 15 In so far as the Regulations prescribe a form which requires a signature or stamp, there is a deficiency in the present case in the sense that the purported bankruptcy notice is not in accordance with the form prescribed by the Regulations. The form of bankruptcy notice served on the Debtor contained the box that I have set out above, including the words in parenthesis referring to signature or stamp. On one view, therefore, there was incomplete accord with the form. The deficiency was the failure to comply with Regulation 4.01(2). Non-compliance with the Regulation is an "irregularity", assuming the Regulations are valid, and no submission has been made that the Regulations are invalid. Such an irregularity, however, is one to which section 306 would apply. 16 The first question before me, therefore, is whether the failure to comply with Regulation 4.01(2) has the consequence that there has been no bankruptcy notice issued as contemplated by section 41. It may well be, as Foster J suggested in Re O'Sullivan, that Rule 7 was intended to prescribe and define the process of issuing bankruptcy notices by the registrar. Similarly, it may well be that Regulation 4.01 was intended to prescribe and define the process of issuing bankruptcy notices by the Official Receiver. 17 However, that is not the point. The Regulations cannot affect the true construction of section 41 itself. If, on the true construction of section 41, the Official Receiver issued the document that was served on the Debtor in this case, non-compliance with Regulation 4.01 would have been no more that an irregularity. Thus, the issue is whether, in the circumstances of this case, it can be said that the Official Receiver issued the document in question. If the act of issue requires authentication by means of a signature or other stamp, that authentication has not occurred.

18 The term "issue" is defined as follows: · "Give or send out authoritatively or officially; publish, emit, put into circulation" - the New Shorter Oxford English Dictionary; · "To put out; deliver for use; to send out, discharge" - the Macquarie Dictionary; · "The act of delivery; emission; sending" - Butterworths Australian Legal Dictionary. 19 The word "issue" involves the idea of something passing from one person to another, sending forth or delivering. Thus, a document which is at all times retained by a person in his own sole control cannot be said to have been issued by him. He might execute or create the document and then decide not to give it to anybody. In such a case, he would not have issued the document - Koon Wing Lau v Calwell (1949) 80 CLR 533 at 568 per Latham CJ. More specifically, a certificate is not "issued" to a person until it is delivered to him, which means that it must pass from the possession of the authorities either into his manual custody or under his control or into his legal possession so as to be at his command - per Dixon J at 574. 20 Koon Wing Lau involved a different question from that before me. There, a certificate had been signed but no more. Under the legislation in question there, the "issue" of a certificate had juridical consequences. The question before me, however, is whether the document served on the debtor was a "bankruptcy notice" within the meaning of section 40(1)(g). Nevertheless, the observations made by the High Court do give some content to the meaning of the word "issue". 21 The first step under section 40(1)(g) is the service of "a bankruptcy notice under this Act". There is no definition of "bankruptcy notice". However, it is clear, by the terms of section 41, that a document will not be a bankruptcy notice under the Act unless an Official Receiver has issued it and it is in accordance with the form prescribed by the Regulations. 22 It is clear enough that the document served on the Debtor was delivered, sent out, emitted and put into circulation. In that sense, it was issued. However, the question is whether it was done by an Official Receiver, authoritatively or officially. It is necessary, for that purpose, to examine the circumstances in which the document came into the hands of the Petitioning Creditor's solicitors. 23 Mr Louis Desire Maurice Sullivan, a Deputy Official Receiver in the New South Wales Branch of the Insolvency Trustee Service Australia ("ITSA") gave evidence in an affidavit as to the usual procedure for the issue of a bankruptcy notice. Several steps are involved in the issue of the bankruptcy notice by the Official Receiver. First, the bankruptcy notice and duplicate copies of the bankruptcy notice are handed by the applicant to a member of the counter staff at ITSA. The bankruptcy notices are affixed with a matter number, a date stamp, a stamp with the address of the Official Receiver, a stamp with the bankruptcy district and the signature stamp of the Official Receiver. If the applicant has included the Official Receiver's address and the details of the bankruptcy district in the bankruptcy notice, there is no requirement for the stamps containing those details to be fixed by ITSA to the bankruptcy notice. 24 The next step is for the original bankruptcy notice to be returned to the applicant who hands it to the cashier of ITSA located at a separate service window. The remaining copies of the bankruptcy notice are retained by the counter staff member. The fee is paid by the applicant to the cashier and a receipt is issued, for the amount paid by the applicant, which is retained by the applicant. An imprint of the amount paid is made on the original bankruptcy notice. 25 Normally, the next step would be for the original bankruptcy notice with the cash register imprint to be returned by the cashier to the applicant. The applicant then returns to the original counter staff member and hands the original bankruptcy notice to that person. The bankruptcy notice with the cash register imprint is retained by ITSA and the remaining copies of the bankruptcy notice are issued to the applicant for service upon the respondent. 26 On 7 January 1999, a filing clerk employed by the solicitors for the Petitioning Creditor lodged a form of bankruptcy notice and original certificate of judgment with ITSA. The documents were delivered across the counter. A receipt was issued by ITSA showing, inter alia, the following: "BNKRNOTAPFEE $300.00" The form of bankruptcy notice was stamped by ITSA with a date and a signature. It was also stamped with the matter number "NN0018/99". It was not necessary for the details of the bankruptcy district and the address of the Official Receiver to be placed on the documents because they had been typed in by the solicitors for the Petitioning Creditor. There could be no doubt about the validity of that notice

27 However, because the amount claimed in that form of notice was incorrect and because the address of the Debtor had changed, the document was not served on the Debtor. Rather, the solicitors for the Petitioning Creditor prepared another form of bankruptcy notice in which several changes were made. The new document was submitted to ITSA under cover of a letter of 15 February 1999 from the Petitioning Creditor's solicitors.

28 The letter relevantly said as follows: "A Bankruptcy notice was previously issued by ITSA on 7 January 1999. Since that time, we have discovered that credits have accrued in favour of the debtor in reduction of the judgment debt and also that the debtor has moved to Queensland. Accordingly, we have amended the Bankruptcy Notice to reflect the following amendments: (a) the address of the debtor on page 1, (b) the amount of the debt in paragraph 1 on page 1, (c) the address for payment in paragraph 4 on page 2, (d) the address of the Federal Court registry in paragraph 10 on page 3, (e) the interest payment and total amounts in the schedule on page 4 and (f) the interest calculation appearing in annexure A to the Bankruptcy Notice on page 7. We enclose the amended Bankruptcy Notice together with the original Bankruptcy Notices which have not been served on the debtor. Would you kindly issue the amended Bankruptcy Notices so that we may arrange for service of same on the debtor in Queensland." 29 An officer in ITSA endorsed on the documents enclosed with the letter of 15 February a number being "NN018/99" and also put a date stamp in the box to which I have referred earlier. The procedure outlined above concerning payment of the fee and imprint of the cash register was not followed. The reason for that appears to be that the counter staff of ITSA were prepared to accept the substitution of the new document for the old document without the payment of any further fee. Having stamped the notices in the way I have indicated, the ITSA officer returned the substitute documents to the filing clerk who had submitted them to ITSA. One of the substitute documents was served on the Debtor. 30 By instrument dated 10 September 1998, the Official Receiver delegated certain authority to persons holding particular offices within the Commonwealth Public Service. The instrument of delegation was relevantly in the following terms: "I, George Lionel Caddy, the person for the time being holding the office of Official Receiver for the Bankruptcy District of New South Wales and the Australian Capital Territory hereby delegate to the person for the time being holding or performing the duties of the office, or each person for the time being holding or performing duties of the office, including [sic] in a class of offices specified in Column 1 in the attached Schedule, to exercise the powers and perform the functions of the Official Trustee and Official Receiver specified in column 2 […]" 31 The schedule contains three columns. The column headings are as follows: Column 1 Column 2 Column 3 "Position" "Powers and Functions Pursuant to Sections of the Bankruptcy Act" "Limitations on Exercise of Powers and Functions"

The schedule contained on its second page the heading, "BANKRUPTCY NOTICES". In Column 2, opposite various descriptions, the following relevantly appeared: "41, Authority to affix by hand or by facsimile a reproduction of the Official Receiver's signature, 54, 52(2), 54A, 54C, 54D, 55(1), 55(3), (3A), (3B), (3C), (4), 55(4A), 55(5), 56B, 56C, 55D, 56E, 56F, 56G, 57(1), 57(3), (3A), (4), 57(5), 57(6), 74(5A)" 32 That material appeared in column 2, under the heading, "Powers and Functions Pursuant to Sections of the Bankruptcy Act". The reference to section 41 indicates a delegation of the powers and functions conferred on the Official Receiver pursuant to section 41. The reference to "authority to affix……a reproduction of the Official Receiver's signature", appears to be a reference to authority to affix the signature where the affixing of a signature is a power or function under any provision of the Act. Mr Sullivan also said that the persons shown in column 1 in the schedule, in relation to the items to which I have just referred, include the counter staff at ITSA.

33 I am satisfied from the evidence that the counter staff at ITSA have delegated authority to exercise the powers and perform the functions of the Official Receiver under section 41 of the Act. That is to say, the counter staff have the authority of the Official Receiver to issue bankruptcy notices, such that a bankruptcy notice issued by counter staff in accordance with the procedure to which I have referred constitutes the Official Receiver "issuing" the bankruptcy notice. Accordingly, I am satisfied, in the circumstances I have described, that, for the purpose of section 41 and section 40(1)(g) of the Act, the Official Receiver issued the document served on the debtor on 1 March 1999.

34 To the extent that the regulations and the prescribed form require the signature of the Official Receiver, I am satisfied that the absence of the signature was a formal defect or irregularity within the meaning of section 306. The only explanation for the absence of a signature stamp was that the omission was an administrative oversight. That appears from a letter from ITSA to the solicitors for the Petitioning Creditor. As I have said, however, there is nothing before me which suggests that substantial injustice has been caused by the defect or irregularity constituted by the omission of the signature.

35 I am satisfied that the Official Receiver issued the bankruptcy notice on 15 February 1999 within section 41 and section 40(1)(g). Accordingly, I am satisfied that there was an act of bankruptcy committed by the Debtor by his failure to comply with the requirements of that notice. That act of bankruptcy occurred on the date alleged in the petition. Therefore, I am satisfied that the allegation in paragraph 4 of the petition is made out.

36 Accordingly, I am satisfied as to proof of all of the matters referred to in section 52(1) of the Act. I propose to order that the estate of Dan Warner be sequestrated. I propose to order the petitioning creditor's costs up to and including 7 July 1999, but no others, be taxed and paid in accordance with the Act. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate: Dated: 13 August 1999 Counsel for the Applicant: R. Sofroniou

Date of Hearing: 23 July 1999; 29 July 1999; 13 August 1999

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