A recent Federal Circuit Court decision has reinforced that the Court will hold any creditor who seeks to serve a bankruptcy notice on a debtor by post to an extraordinarily high standard of proof.
Mr Kenyon was made bankrupt on 16 January 2017 on the application of Lavan Legal. Mr Kenyon sought to have the creditor’s petition, and his bankruptcy, set aside on a number of grounds. One of those grounds was that Lavan could not rely upon Kenyon’s failure to comply with the bankruptcy notice issued by Lavan because it had not been properly served on him.
The evidence showed that Lavan had sought to serve the bankruptcy notice by post. Service by post is allowed under Regulation 16.01 of the Bankruptcy Regulations and there was no question that if Lavan complied with the requirements of service under the Regulations, there could be no suggestion that the bankruptcy notice was not properly served. However, His Honour Judge Lucev quoted multiple case authorities which state that strict proof of service is required if service by post is relied upon.
Lavan relied upon an affidavit of service of the bankruptcy notice which stated in part:
“On 15 June 2016, I caused an official copy of [the bankruptcy notice] … to be served on the Respondent (that is, Kenyon) by:
- posting by ordinary post an envelope addressed to Mr Terence Kenyon at [his street address] containing:
- the Documents and
- a covering letter addressed to Terence Kenyon.
‘BLS1’ is a copy of the envelope addressed to the Respondent, the covering letter and the Documents.
I verily believe [the street address] to be the Respondent’s home address on the basis of [Lavan] previously acting as the solicitors for the Respondent.”
His Honour had a number of problems with the evidence as to service:
“There is nothing in the Strickland Service Affidavit which indicates how it is that Kenyon might have known the date of posting of the Bankruptcy Notice. It is not sufficient to assume that the date of the 15 June 2016 Letter was also the date of the posting of the … Bankruptcy Notice. That is particularly so where the 15 June 2016 Letter does not say that it is being posted on that date, and there is no mark (such as that of a franking machine) or notation (be it by hand or otherwise) on the envelope which indicates a date of postage. Nor is there any particular evidence as to how it is that Strickland ’caused’ the envelope containing the … Bankruptcy Notice to be posted, or as to how Lavan might ordinarily cause such a letter to be posted, or as to when it was actually posted … The evidence in relation to the service of the … Bankruptcy Notice does not evidence a meticulous approach by Lavan and does not meet the required strict proof of service necessary.”
So, despite what may be perceived by a lay person as a comprehensive description of the manner, method and timing of service by post by Lavan, His Honour was not convinced that it was “meticulous” enough.
The strictness in which the rule as to service by post is applied has its origin in the days when one of the possible consequences of being made bankrupt was penal servitude. Obviously, debtors nowadays have no such concerns. Further, it is possible that draft legislation currently before Federal Parliament will see the term of bankruptcy reduced from its current three years to one year.
In spite of the relaxing of the negative consequences of bankruptcy for a debtor, it would appear that there will be no corresponding relaxation of the hoops that a creditor will need to jump through in order to bankrupt a debtor.
Read the judgment here: http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCCA/2017/2529.html
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
