CATCHWORDS BANKRUPTCY - bankruptcy notice not specifying interest due to the date of the notice - application of s.41(2) and s.306(1) of the Act - whether claiming part only of the interest due under judgment permissible where claim to remainder not abandoned ~ whether verifying affidavit based on knowledge and belief is acceptable Bankruptcy Act 1966 (Cth) s.306(1), s.47(1) RE; BSDWARD LYALL SLY; EX PARTE BROADLANDS INTERNATIONAL FINANCE LIMITED No. P lo) 87 Davies J. Sydney 21 March 1988 BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. P2384 of 1987 ee ee et et eet Net Niet Set eet RE: EDWARD LYALL SLY Debtor EX PARTE: BROADLANDS INTERNATIONAL FINANCE LIMITED Petitioning Creditor CORAM: Davies J. DATE: 21 March 1988 PLACE: Sydney MINUTES OF ORDER THE COURT ORDERS THAT: 1. The petition be dismissed. 2. The petitioning creditor is to pay the debtor's costs o£ and incidental to the petition. NOTE: Settlement and entry of orders is dealt with in Bankruptcy Rule 124. b. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION ) ) BANKRUPTCY DISTRICT OF THE STATE OF ) No. P2384 of 1987 ) NEW SOUTH WALES AND ) ) ) THE AUSTRALIAN CAPITAL TERRITORY RE: EDWARD LYALL SLY Debtor EX PARTE: BROADLANDS INTERNATIONAL FINANCE LIMITED Petitioning Creditor CORAM: Davies J. DATE: 21 March 1988 PLACE: Sydney REASONS FOR JUDGMENT The bankruptcy petition herein is opposed on two grounds. One is that the bankruptcy notice did not correctly specify the amount of interest demanded on the judgment debt. The bankruptcy notice recited that the judgment creditor, Broadlands International Finance Limited, claimed the judgment debt, the sum of $564,654.66, together with interest thereon at the rate of 18.5% per annum from the date of the judgment, 15 April 1986. The notice, which was dated 4 June 1987, then went on to recite that, at 13 May 1987, that interest amounted to $110,954.63. The bankruptcy notice recited that the total of $675,609.29 was due by the debtor, Edward Lyall Sly, to the creditor under the judgment of the Supreme Court of New South Wales made on 15 April 1986. The notice went on to state, in the usual form, that the debtor was required within 14 days of service of the notice on him to pay "the sum of $675,609.29 so claimed by the judgment creditor". It was submitted by Mr Gray of counsel, who appeared for the debtor, that the bankruptcy notice was invalid in that it understated the amount of the interest due under the judgment debt up to the date of the bankruptcy notice, 4 June 1987, by $5,928.93, being the interest which accrued between 14 May 1987 and 4 June 1987. The principles to be applied are well established. They are:- 1. As provided in s.41(2) of the Bankruptcy Act 1966 (Cth)("the Act"), the bankruptcy notice must require the debtor to pay within the specified time "the judgment debt or sum ordered to be paid in accordance with the judgment or order". 2. <A bankruptcy notice which understates the amount of the judgment debt is invalid unless the notice makes it clear that nothing more than the specified amount is claimed to be due. As Romer L.d. said in Re H.B. (1904) 1 K.B. 94 at p.103, "Clearly, in a bankruptcy notice the debtor is entitled to see from the notice exactly what is claimed to be due on the judgment debt. No doubt a sum might be claimed which is less than the real amount due, and that would not of course be fatal to the notice so long as the notice made it clear that nothing more was claimed to be due on the judgment beyond the amount specified in the notice. But a notice to pay part of a judgment debt, leaving any balance that may be due to be subsequently claimed, is, to my mind, clearly bad." A purely formal defect or irregularity in the bankruptcy notice may be excused under s.306(1) of the Act but no understatement of the sum due will be excused if it was significant enough to be capable of misleading, perplexing or embarrassing the debtor. See e.g. Crowl and Others v. Kleinwort Benson Australia Limited (1987) 74 A.L.R. 148 at 151-3. If interest runs upon the judgment debt, a judgment creditor may choose to refrain from including in the bankruptcy notice any reference to that interest or he may include in the notice "an accurately calculated claim for interest up to the date of the issue of the notice." See Re Mullavey; ex parte Australia and New Zealand Banking Group Ltd (1977) 20 A.L.R. 276 at p.284. In the application of s.306(1) toa miscalculation of interest, some latitude is permitted both because the amount of interest is not fixed by the judgment debt but runs from the date of the judgment to the date of payment. (Per Lockhart J., Re Manion; ex parte Deputy Commissioner of Taxation (1979) 23 A.L.R. 270 at 273) and because it may be impossible to be certain that the bankruptcy notice will be issued on the precise day up to which the interest has been calculated. (Per Riley J. in Re Munson; ex parte Deputy Commissioner of Taxation (1977) 29 F.L.R. 479 at pp.482-3 and per Lockhart J. in Re Manion, cited above, at p.275) If interest is claimed, it is not sufficient to state the rate of interest claimed but, as a bankruptcy notice must specify a sum as to the amount due to the creditor, the bankruptcy notice must specify the amount of the interest required to be paid. See Re Munson, cited above, at p.482. The subject bankruptcy notice did not specify the amount of the interest claimed. It specified a rate of interest and the amount of that interest calculated up to a date which was three weeks before the date of the bankruptcy notice. It was not permissible for the judgment creditor so to claim part only of the debt, leaving another part of the debt subsequently to be claimed. If interest was demanded, the amount due up to the date of the bankruptcy notice had to be specified or the claim for interest after the date named in the bankruptcy notice, 14 May 1979, had to be abandoned. In my opinion, the notice on its terms claimed part only of the interest due under the judgment, a course which was hot open unless any claim to the remainder of the interest was clearly abandoned. Not only was the interest after 14 May 1979 not abandoned, the recitals indicated that the judgment creditor regarded interest up to the date of payment as due under the judgment. Such an error cannot be excused under s.306(1). On its terms, the bankruptcy notice did not do that which it was bound to do, namely, to require payment of the whole of the judgment debt claimed to be due. The second matter raised in opposition to the petition is of less significance. The affidavit verifying the petition did not follow Form B4 in the 5th Ed. of McDonald, Henry and Meek's Australian Bankruptcy Law and Practice, namely to depose that the statements contained in the allies ta Aapiaiatoemer aaeel Paragraphs of the petition are "within my own knowledge" true. The same form is to be found in the 4th Ed. of the work, published in 1968, in which the learned authors added the information "If the petitioner or his agent cannot verify all of the statements in the petition of his own knowledge, a further affidavit of some person who can depose to those statements which he cannot verify should be filed. That form and note earlier appeared in the Bankruptcy Rules 1824 and in the English Bankruptcy Rules. The subject affidavits, one by Kim Albaek, the State Manager of the petitioning creditor, was expressed in these terms:- "4. The statements contained in paragraphs 1, 2 and 3 of the petition are to the best of my knowledge and belief true." Section 47(1) of the Act requires that a creditor's petition "shall be verified by the affidavit of a person who has knowledge of the facts". However, the word "knowledge" must be read in the context in which it appears and also in the light of the long history of bankruptcy practice. A deponent must speak from knowledge but is entitled to, and indeed ought to be informed by the creditor's books of account and other business records and by making all due and proper inquiries of the creditor's servants and agents. = eee ee ee Earlier authorities required "strict proof" of a creditor's petition. See eg. In Re A Debtor (1910) 2 KB 59 at pp.62-3 per Vaughan Williams L.J. and Re Williams (1968) 13 F.L.R. 10 at pp.22-3 per Gibbs J.. But the form presently set out in Atkin's Court Forms 2nd Ed. Vol.7, p.250 1s in these terms:- "That the several statements in the said Petition are to the best of my knowledge, information and belief true". The subject affidavit substantially adopts this form. An objection similar to that taken by Mr Gray was rejected in Ebert v. Union Trustee Co. of Australia Ltd (1961) 105 C.L.R. 327. At p.332, Dixon C.J., Kitto, Taylor, Menzies and Windeyer JJ. said:- "It was next suggested that there was not a sufficient compliance with s.52 because non-payment of the costs was not proved by direct evidence that the judgment was unsatisfied but only by the oath of the Sydney Manager of the Company whe could not know of his own knowledge. This objection is ill founded. The grounds of the notice of opposition impliedly admit non-payment and in any case where there is a large business or company, proof of such a negative fact as non-payment can seldom be given except inferentially as the result of the general evidence of a person who has inquired and bases his negative evidence on the regular course of recording payments and whatever other routine information is relevant. Even then it will often amount only to prima facie proof." Their Honours' remarks apply equally to Mr Albaek's verification of paragraph 1 of the petition, namely as to the debtor's presence in Australia at the date of the commission of the act of bankruptcy, as they do to Mr Albaek's verification of the judgment debt and of the debtor's failure to make payment thereof. The decision of Beaumont J. in Re McSwiney; ex parte Davies (delivered 24 November 1986) is~to like effect. - In the absence of contention as to the facts set out in the petition, I accept Mr Albaek's affidavit as sufficient verification thereof. There is nothing to suggest that Mr Albaek was not the appropriate officer of the petitioning creditor to make the affidavit or that he did not have the knowledge of the facts, to which he deposed which s.47(1) of the Act requires. I therefore dismiss this ground of opposition to the petition. However, as the bankruptcy notice was defective, the petition must fail. The order of the Court will be that the petition is dismissed with costs. I certify that this and the 7 preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Davies. Associate: - Date: March 1988 Counsel for the debtor: Mr V.R.W. Gray Solicitors for the debtor: Gye and Perkes Counsel for the petitioning Mr S.D. Epstein creditor: Solicitors for the petitioning Holmes and Bevan creditor: Date of hearing: & March 1988