JUDGMENT No. 48ay 88... CATCHWORDS BANKRUPTCY - Validity of Bankruptcy Notice - Incorrect dating of the interest claim - Incorrect mathematical calculation of interest - Unauthorised handwritten amendments - power of court to extend the time for compliance with bankruptcy notice Bankruptcy Act 1966; sections 33(1) 41(5) Re Danielle Pender ex parte Warwick Ross Sullivan and Ross Francis Sullivan P 939 of 1987 CORAM: Einfeld J. DATE: 22 April 1988 PLACE: Sydney IN THE FEDERAL COURT OF AUSTRALIA "GENERAL DIVISION No. P 939 of 1987 BANKRUPTCY DISTRICT IN THE STATE OF NEW SOUTH WALES AND THE ee eee ee ee AUSTRALIAN CAPITAL TERRITORY Re: DANIELLE PENDER Debtor Ex parte WARWICK ROSS SULLIVAN and ROSS FRANCIS SULLIVAN Creditors CORAM: Einfeld J. DATE: 22 April 1988 PLACE: Sydney MINUTE OF ORDERS 1. The petition be dismissed. 2. Each party to pay their and her own costs. Note: Settlement and entry of these orders are dealt with in accordance with rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA . GENERAL DIVISION No. P 939 of 1987 BANKRUPTCY DISTRICT IN THE STATE OF NEW SOUTH WALES AND THE wee we ew AUSTRALIAN CAPITAL TERRITORY Re: DANIELLE PENDER Debtor Ex parte: WARWICK ROSS SULLIVAN and ROSS FRANCIS SULLIVAN Creditors CORAM: Einfeld J. DATE: 22 April 1988 PLACE: Sydney REASONS FOR JUDGMENT This is an application by Danielle Pender (the debtor) for the dismissal of a bankruptcy petition on the grounds that there is no act of bankruptcy proved to have been committed. The particulars relied upon are that the bankruptcy notice was defective in three respects: (a) that it claimed interest for one day after the date of its issue; (b) that the interest was incorrectly calculated; (c) that the bankruptcy notice contains handwritten amendments which are not initialled or otherwise identified as having been made by or with the approval of the Registrar in Bankruptcy. The bankruptcy notice was issued on 30 October 1986. It claimed that there had not been payment of a judgment entered 1n favour of Warwick Ross Sullivan (the second creditor) in the Sutherland Local Court on 2 May 1986 for the sum of $591.00. The bankruptcy notice claimed that principal sum together with interest at the rate of 18.25% per annum from 2 May 1986 to 31 October 1986. The amount for interest was $53.61 meaning that the total claimed was $644.61. The debtor now claims that by extending the interest to 31 October, one day beyond the date of issue of the bankruptcy notice, there 1s a claim for interest to which the creditor is not entitled. The debtor also claims that the amount for interest was limited to interest at the rate of 18.25% or $0.2955 per day for 181 days. This amounts to $53.48 and not $53.61 as claimed in the bankruptcy notice. Even if the amount was calculated to 31 October which would be 182 days, the interest payable would be $53.78 and not $53.61. It should be noted that this bankruptcy notice represents only one part of the debt forming the substance of the creditor's petition in this matter which is a petition brought by the second creditor together with Ross Francis Sullivan ( the first creditor) who was the creditor in other proceedings against the applicant in the Sutherland Local Court on other occasions. In particular, the judgment creditors do not dispute the matters alleged. They do not dispute that handwritten alterations were made to the relevant bankruptcy notice. It appears as if these alterations were made by the first creditor although they were alterations made to the bankruptcy notice of the second creditor. The alterations were apparently made in the registry when registry staff was assisting the first creditor to amend the bankruptcy notice that had been submitted for stamping. The notice appears to have been given the date 30 October 1986 by Deputy Registrar Ms Hedge. In his submissions concerning this matter the first creditor says that: "The handwritten changes and additions on the notice are amendments by myself and registry staff" It seems to me from an examination of the handwriting that the alterations were not made by Deputy Registrar Hedge. The alterations changed the amount of the original debt, the amount of the interest, the amount of the total debt upon which the sequestration was being sought and the status of the second creditor. It seems clear that at least two of these alterations were overstamped by the registry stamp but some were clearly neither initialled nor stamped by the court at all. The judgment creditors reply to the applicant's assault on the bankruptcy notice in this way: 1. The Incorrect Dating of the Interest Claim (a) The bankruptcy notice was served after 31 October 1986 and therefore complies with sec.41(1)(a) of the Bankruptcy Act 1966 (the Act); (b) If there is an implicit requirement to claim interest only up to the date of issue and therefore that this bankruptcy notice is defective, the defect is formal only and therefore curable under s.306 of the Act; (c) (d) (a) (b) (c) (a) (b) In addition the wrong dating was not reasonably likely to mislead or perplex the debtor and did not cause substantial injustice as a result of which 1t can be cured by the s.306 of the Act; Alternatively there should be applied the maxim "de minimis non curat lex". The Incorrect Mathematical Calculation of the Interest The debtor could not have reasonably been misled by the small error or the handwritten amendments; The mathematical error is a formal defect only which is curable by the operation of s.306(1) of the Act; As an alternative the maxim "de minimis non curat lex" should apply; The Unauthorised Handwritten Amendments There was no compliance with s.41(5) in that within the time allowed for payment of the bankruptcy notice, the judgment creditors were not notified that the debtor disputed the validity of the notice on the ground of a misstatement; Section 33(1)(c) of the Act does not permit the court to extend the time provided by s.41(5) or the time for compliance with the bankruptcy notice after the expiration of the time fixed for compliance; (c) But if it does, the court should not exercise its discretion under s.33(1)(c) to extend the time as the debtor has been dilatory and injustice would be done to the petitioners. It is clear that a bankruptcy notice may include a claim for interest on a judgment debt which bears interest: Re The Bankruptcy Act 1966; ex parte The Commercial Banking Company of Sydney Limited (1979) 23 ALR 522 at 526 and the cases there stated; Crowl v Kleinwort Benson Australia Limited (1987) 74 ALR 148; Re Edward Lyall Sly; ex parte Broadlands International Finance Limited ( Davies J unreported 21 March 1988). At the same time a creditor is entitled to issue a bankruptcy notice for the amount of the judgment debt and make no reference in the notice to any question of statutory interest attaching to that judgment debt (see Re Keith John McAlpine; ex parte AMEV Finance Limited (Spender J unreported 14 December 1987)) provided the notice makes it clear that nothing more than the specified amount is claimed to be due (see Sly above); Re HB (1904) 1 KB 94 at 103). However, the amount that can be claimed to be due is only the amount which is due at the time of the bankruptcy notice and cannot be for a period after the bankruptcy notice 1s issued. The consequence of extending the period would mean that a bankruptcy notice could claim an amount due but not yet accrued at the time of the notice. Although in this case it was only one day, and involved an overstatement of the amount of interest by only some 13 cents in $53.00, the principle would apply whether it was one day or one year. As to overstatements, the law now seems to be clear. It appears that while bankruptcy notices must conform strictly to statutory requirements, only those defects or irregularities which could reasonably mislead debtors will be fatal to notices (see Re Wimborne; ex parte The Debtor (1979) 24 ALR 494; James v The Federal Commissioner of - Taxation (1959) 93 CLR 631; and the cases I reviewed 1n Re Matthews ex parte Hazet Tools (Australia) Unit Trust, trading as Hazet Tools (Australia) (unreported 1 September 1987). The situation in this case is that both the date to which the interest is calculated and the amount of the interest, regardless of the date to which it is calculated, are erroneous. It is true that the date is only one day out and that the amount incorrectly stated is, in the one case, 17 cents understated and, in the other case as I have said, 13 cents overstated, both these defects being looked at against the total amount involved of $53. Nonetheless, it seems to me that the authorities constrain me to find that this combination is sufficient to mislead or perplex the debtor and that therefore the bankruptcy notice is invalid. This raises the problem covered by s. 41(5) of the Act to which I have earlier adverted. No notice was given as required by that section, but in the course of argument in the matter, the debtor applied through her solicitor for the Court to exercise the powers provided by s. 33(1) to extend the time for the giving of the notice required under s. 41(5). The debtor suggests that there 1s authority in support of the view that the Court has power under s.33(1) to extend the period of notice under s.41(5) (see Streimer v Tamas(1981) 54 F.L.R.253). I am not sure that this is so but assuming that it is, the question is whether it should be done in this case. The facts in this reveal that the statutory time would have expired on 13 November 1986. The former solicitors for the debtor advised the creditors by letter dated 1 December 1986 that they then had instructions to apply for the notice to be set aside. However, no such application was actually made until the matter was raised at the hearing before me on 27 October 1987, notwithstanding the fact that the - petition had been filed on 18 May 1987 and set down for hearing on 13 July 1987. I am informed that the validity of the bankruptcy notice was raised at a hearing before the Registrar on 28 September 1987 when orders were given for the debtor to file any notice of opposition and other supporting documents by 6 October 1987. In fact, what happened was that a notice of intention to oppose the petition was filed on 9 October and an amended notice on the 27 October 1987. This document, I am informed, was handed up to the Registrar on 27 October, just before the matter was sent to me. This was the third hearing date. It was accompanied on that date by an oral application for a declaration of invalidity of the bankruptcy notice. In approaching the question whether to extend the discretion of the Court provided for in s. 33 in favour of the debtor, it is proper to observe that no explanation has been given for the delay, nor has a formal application of any kind been filed. All I have at the moment is a somewhat incidental application during the hearing on 27 October 1987, before the Registrar at first instance and then to the Court. The judgment creditors have been allowed to present their petition and have been before the Court at least four times. They have never been previously told what the challenge to their notice was. Accepting, however, that there is before the Court an application for an extension of the time prescribed by s. 41(5) and accepting without holding that there 1s power to grant an extension, I hold for the reasons earlier given that the bankruptcy notice claims an amount in excess of the amount in fact due. Therefore s.41(5) would have invalidated the bankruptcy notice if a notice disputing the validity of the notice on that ground had been given within the appropriate time or if an extension were now granted. For the above reasons, however, I refuse the application and therefore refuse an application for extension of time to strike out the bankruptcy notice. Notwithstanding my assumption that there is before the Court a s.33(1) application to extend the s.41(5) time limit, this matter 1s really or in addition before the Court on an application by the judgment creditors for the sequestration of the debtor's estate opposed by the debtor on the ground, inter alia, that there is no act of bankruptcy because there is no valid bankruptcy notice. It seems a strange consequence that a bankruptcy notice which is apparently invalid because it claims an amount in excess of the amount properly due can form the basis of an act of bankruptcy to ground the petition merely because a notification was not given that the notice was being challenged. Nonetheless' that appears to be the effect of s. 41(5) and of statements in the cases to which I have earlier referred. For those reasons, I am not able to dismiss the petition on the basis that the amount due has been exceeded by the amount claimed. The third objection to the notice, however, is not a matter dealt under s. 41(5), namely the apparently unauthorised corrections of the bankruptcy notice. I say "apparently unauthorised" because in his written submissions on this matter, the second creditor says that the handwritten changes and alterations were done by himself and the Registry staff, as previously outlined. This means, of course, that he is claiming that someone in the Registry in substance "authorised" the alterations or agreed to them in some form or other. The question then would be, whether, as he claims, these admitted defects in the notice should be treated as formal defects and that s. 306(1) should be called in aid to cure the defects. In McAlpine, Spender J considered that such alterations in aé_#e bankruptcy notice render it invalid. In that decision, his Honour referred to a decision of Lockhart J in Clyne v Deputy Commissioner of Taxation No 4 (1982) 66 FLR 301. At 305 et seq, Lockhart J both in the case then under consideration and by reference to his own earlier observations in Re Wong ex parte Kitsen (1979) 38 FLR 207 at 217, held that a debtor is not required to manipulate a track through a bankruptcy notice to resolve questions of doubt or ambiguity. Reasons given by both Lockhart and Spender JJ in the relevant' cases refer to the quasi penal consequences of bankruptcy legislation and apply other authority which says that the question of perplexity and confusion must be tested not on the basis of whether the particular debtor was in fact misled but whether the defects were of the kind that could have misled. As in McAlpine, it is apparent that someone in the Registry might have been in some way partly responsible for the defect in relation to this notice. In those circumstances, it is a matter of special regret' that this situation should have arisen, but it seems to me on the authorities that the bankruptcy notice is invalidated by these corrections and that therefore the petition must be dismissed. In any event, I would not have held these corrections to be formal and therefore curable by s. 306(1). I therefore find that the bankruptcy notice is defective because of its uninitialled and apparently unauthorised changes. For those reasons I dismiss the petition. I consider that the appropriate order for costs ir and her own costs. in the circums eac tha S a uces7 of the herein of hs Honour | certify that 'Ws 77" preced'>7 7 Reasons ior Juag neat Mr Justice £ nteld ne We Ags. cid OR~G- ST _ Solicitors for the debtor Mr J Johnson of Johnson & Co., Solicitors Appearance for the creditors Mr Ross Sullivan (the second creditor) Date of judgment 22 April 1988.