Australian Credit Law Bulletin - Vol 4, No 4, April 2003
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: aus-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Claw back of divorce settlement from bankrupt's ex-wife
The trustee wanted to get $95,000 back. This money had been paid to her in a divorce settlement. - Can you avoid your parking fines by going bankrupt?
Having accumulated 72 parking tickets and penalties totaling $15,000 this debtor wanted them wiped i - Debtor didn't appear because he was dead
A case which proves once again that the threat of bankruptcy doesn't scare deceased debtors. - Director didn't know of winding up application. Not the creditor's problem!
A statutory demand was delivered to a letterbox that was never checked and the director simply could - Bankrupt sues his trustee for $40 million
The trustee decided not to continue with the bankrupt's legal actions but the bankrupt did not like - Bankruptcy notices referred to the wrong section - were they valid?
The bank claimed interest in two bankruptcy notices. The amounts were right, the sections referred to were wrong. - "Nothing could be done to resuscitate the application"
The application to set aside a statutory demand did not include a return date. The corrected version needed to be a "copy".
1. Claw back of divorce settlement from bankrupt's ex-wife
Worrell (Trustee) v Kerr-Jones [2002] FCA 1090 (6 September 2002)
In 1996 Mrs Kerr-Jones’s marriage broke up and a property settlement was negotiated between her and her husband. Mrs Kerr-Jones accepted an offer from her husband to pay her $95,000 from an MLC Superannuation entitlement. This amount was paid and she then used it to buy a home. A couple of months later, her husband went bankrupt and Mr Worrell was appointed as trustee.
The rule is that if a person who is insolvent (Mr Kerr-Jones) transfers property to a creditor (Mrs Kerr-Jones) immediately before going bankrupt, this transfer is void if the transfer effectively gave the creditor a preference over other creditors. In a bankruptcy, all creditors are supposed to suffer equally.
At the first hearing the magistrate concluded that the payment had not given Mrs Kerr-Jones a preference because the payment came from money not otherwise available to creditors.
Mr Worrell, appealed against that decision. On appeal the judge dismissed the earlier decision. If the money had remained in the superannuation plan then it would not have been available to the Trustee or to the creditors. However the fact was that Mr Kerr-Jones directed the withdrawal of the funds before his bankruptcy and the payment of them to Mrs Kerr-Jones.
The judge held that the payment that had been made to Kerr-Jones was void and that she should repay the $95,000 to the trustee.
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2. Can you avoid your parking fines by going bankrupt?
Mansfield v State of Victoria [2002] FCA 1175
Michelle Mansfield was an unemployed pensioner. Over a period of time she had accumulated 72 parking infringements. Mansfield failed to pay any penalties or costs relating to those infringements. Eventually, the amount she owed was $14,755.30. An order was made that she pay the amount due but she did not.
A debtor’s petition of Mansfield, presented by her under s54A of the Bankruptcy Act 1966, was accepted on 29 March 2001 with the consequence that she was bankrupt from that date. Her total assets came to $500 in value. Her only debts were the $15,000 in parking fines she owed.
The argument here was whether the parking fines were “provable debts” in her bankruptcy. A “provable debt” is one that the bankrupt was subject to when the bankruptcy began. Mansfield argued that, under s82(1) of the Bankruptcy Act 1966, they were provable debts and as such the debts could be discharged and she would no longer owe that money after being discharged from bankruptcy. However, the State of Victoria claimed that the parking fines were not provable debts and that they could be enforced by the court.
If the amounts owing were not imposed by the court then they were provable debts (s82(3) Bankruptcy Act). So the question became whether the parking fines were imposed by the court.
Payment of parking fines was provided for in s99 and was by way of a “PERIN” Procedure (Procedure for Enforcement of Infringement Penalties). Mansfield claimed that the PERIN enforcement process was merely administrative and so fines imposed pursuant to this regime were not fines imposed by a court.
The judge agreed that the PERIN procedure was merely the procedure for enforcing payable debts. The judge said that a court order for the payment of an existing debt is not an order imposing a liability for a penalty or fine. Therefore the parking infringements were not imposed by a court so were provable debts. Mansfield did not have to pay the $15,000 worth of parking fines.
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3. Debtor didn't appear because he was dead
Valassis, in the matter of Valassis v Bernard [2003] FCA 22 (20 January 2003)
Dennis Valassis had accumulated a debt of $40,363.11, owed to Eric Bernard. Valassis committed an alleged act of bankruptcy on 22 August 2002. On 4 September Bernard issued a creditor’s petition claiming the full amount. But Valassis died on 28 October 2002 having been gravely ill for several months.
The hearing of an application for a sequestration order on the creditor’s petition took place on 5 November 2002. Neither Bernard or the court were aware that Valassis had died. The sequestration order was made on 18 November 2002. A sequestration order puts the debtor’s assets in the hands of a trustee in bankruptcy to satisfy creditors.
The representatives of Mr Valassis’ estate applied to the court requesting that the sequestration order should be annulled. Under s153B of the Bankruptcy Act 1966 the Court may make an order annulling the bankruptcy if the Court thinks “that a sequestration order ought not to have been made”.
The court suggested that Bernard’s application should have been made in line with s245 of the Bankruptcy Act. That section considers the situation where a debtor has died after being served with a creditor’s petition. It states that an order may be made “on that petition for the administration of [the debtor’s] estate”.
The judge was satisfied that the sequestration order should be annulled. Valassis was gravely ill during the last months of his life and was clearly solvent with a substantial surplus of assets over the debt owed to Bernard. The surplus was actually over a million dollars. However, Valassis had chosen not to or was unable to obtain representation for the hearing of Bernard’s petition. The judge said that Valassis’ estate could easily realise assets to pay the debt and Bernard was not opposed to an annulment.
The judge ordered that the bankruptcy of the late Dennis Valassis be annulled.
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4. Director didn't know of winding up application. Not the creditor's problem!
Liberty Funding Pty Ltd v Drakeswood Pty Ltd No. SCCIV-02-84 [2002] SASC 54 (19 February 2002)
Drakeswood Pty Ltd owed Liberty Funding Ltd nearly $44,000. In order to serve a statutory demand on the company, a Liberty representative delivered the statutory demand to the letterbox of the registered address of Drakeswood.
The amount demanded was not paid and no application to have it set aside was made by Drakeswood. Liberty then issued an application for a winding up order. The winding up application papers were served in the same letterbox as the statutory demand.
When the hearing for the application of the winding up order arrived, Drakeswood did not turn up. It was then established that when the winding up application was served, the process server noticed that the statutory demand was still in the letterbox. The court felt that it was safe to assume that Drakeswood had received neither the application to wind up nor the statutory demand.
Liberty saw that the court was reluctant to make a winding up order under such circumstances and so they tried to serve the sole director of Drakeswood personally. They went to her house three times, and were told on the third visit that the house had been sold in a mortgagee sale and that the new owners did not know her new address. Looking her up on the electoral roll and the telephone book gave no answers as to her whereabouts either.
The question before the court was whether there had been effective service of the application to wind up. The answer in these circumstances lies with whose responsibility it was to make sure the winding up notice was received.
In this case the judge held that that responsibility lay with Drakeswood– Liberty had done all they could and Drakeswood should have been clearing the letterbox. The judge said that, “[i]t seems to me that an inference might be drawn that…the company's financial position is poor and from that the inference might properly be drawn that [the director] is neglecting her responsibilities in relation to the company.”
The service of the winding up application was deemed to be effective and an order was made to wind up Drakeswood.
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5. Bankrupt sues his trustee for $40 million
Beames v Khatri [2002] FCA 1381 (6 November 2002)
In May 2002 Mr Beames was made bankrupt. Mr Khatri was appointed as one of the trustees of his property.
At the time he was made bankrupt Mr Beames was involved in a number of court actions. He had lost both of the two principal cases. However, there was still a claim for damages from an injunction granted during the course of one of the actions.
The trustees had notice of both these proceedings however decided that no further action would be taken in relation to them unless they received $10,000.00 to enable them to get an independent legal review of each action. However there was no money and no assets in the estate.
Mr Beames however thought that the actions should be pursued and was seeking damages of up to $40,000,000.00 against the trustees for negligence or breach of duty – he alleged that they took part in a scheme to disable him by not allowing him to continue with his court actions. He also sought an order that he could continue the actions abandoned by them.
The judge, however, disagreed with Mr Beames and found that his application should be struck out. As to costs the judge found it significant that “[Mr Beames] has brought proceedings which had no foundation in law or fact and which involved serious allegations of impropriety” and awarded costs to the trustees.
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6. Bankruptcy notices referred to the wrong section - were they valid?
Commonwealth Development Bank of Australia Ltd v Adams [2002] FCA 225 (20 February 2002)
The Commonwealth Development Bank of Australia gained two separate judgments in the Supreme Court of New South Wales against Mr Knight-Gregson and Mr and Mrs Adams. The judgment debtors failed to pay. Each were later served with bankruptcy notices due to that failure. In each case the bank claimed interest as from the date of judgment. However, both of the bankruptcy notices contained a deficiency. The deficiencies were similar which is why the two separate petitions by the bank were joined.
If interest is claimed in a bankruptcy notice then details of the amount and the calculation of the interest are to be included in a document attached to the notice. This is so that the debtor can check that the amount claimed is correct. The Bankruptcy Act 1966 makes it essential that the provision under which the interest is claimed is included in the notice. If this is not complied with then the notice will be invalid.
Mr Knight-Gregson’s notice stated that the interest claimed was pursuant to s94 of the Supreme Court Act 1973 (NSW). Also included was a table labelled “summary of interest collection” in which one of the headings was “interest rate pursuant to section 85”. This was a different section than had previously been named as the section under which the interest was claimed.
The Adams’ notice was similar except that instead of referring to s85, it only referred to s94.
The judge in this case concluded that the sections mentioned were all incorrect and that what was meant, in all cases, was s95. This was supported by the fact that s85 was about trial procedure and had nothing to do with interest calculation. Section 94 dealt with interest, however, it did not tell the bankrupt what their source of liability for interest was. In other words, citing s94 does not fulfil the essential requirement of making it known to the bankrupt the precise source of the creditor’s entitlement to interest.
Therefore the judge decided that the bankruptcy notices of Mr Knight-Gregson and the Adams’ were invalid. The petition was dismissed.
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7. "Nothing could be done to resuscitate the application"
Universal Trade Exchange Pty Ltd v Westpac Banking Corp [2002] WASC 36 (7 Mar 2002)
On 18 January 2002 Westpac Banking Corp served on Universal Trade Exchange Pty Ltd a statutory demand. On 8 February 2002 Universal filed an application to set it aside and included an affidavit in support. This was served that same day.
On 18 February Westpac’s solicitors wrote to Universal telling them that the application to set aside the statutory demand did not include a return date. Therefore, the application did not comply with the law and so the application was not valid. Universal’s solicitors wrote back that day with a copy of the application and the return date included. However, four pages of the affidavit that had been included in the first application were missing from the second. This meant that the second application was not a “copy” of the first as it was required to be.
It made no difference that Westpac suffered no detriment because of this mistake. What mattered was that the strict letter of the law was not complied with. Therefore the application was not valid. Also, the 21 days in which an application must be filed had then passed without a valid application being filed “and nothing could be done to resuscitate the application.”
