2 March 2022
From 1 April 2021, the Bankruptcy Regulations 1996 (Cth) (Former Regulations) were replaced by the Bankruptcy Regulations 2021 (Cth) (Bankruptcy Regulations). Whilst the various amendments introduced by the new Bankruptcy Regulations have been largely represented as minor and administrative in nature, there is one critical amendment concerning the method for service of bankruptcy notices.
What is a bankruptcy notice?
A bankruptcy notice is a formal and final demand for payment by a creditor requiring the debtor to either:
- pay the debt owing;
- enter an agreement with the creditor to pay the debt; or
- apply to set aside the bankruptcy notice,
within 21 days of being served with the bankruptcy notice.
Failure to do any of these things constitutes an act of bankruptcy pursuant to section 40 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) and entitles a creditor to present a “creditor’s petition” to the Federal Court seeking orders bankrupting the debtor (by the making of a sequestration order).
Because an ‘act of bankruptcy’ (pursuant to section 40 of the Bankruptcy Act) is calculated by reference to the date of service, it is essential practitioners do not find themselves in a situation where the validity of service is challenged by the debtor on the basis that the method used was not one permitted by the Bankruptcy Regulations.
Service of a Bankruptcy Notice
Given the significant consequences a bankruptcy notice is likely to have on the debtor, the Court is required to be satisfied that the bankruptcy notice was served validly and effectively on the debtor within 6 months of issue by the Australian Financial Security Authority (AFSA) in accordance with the requirements set by the Bankruptcy Act and Bankruptcy Regulations.
Under the Former Regulations, bankruptcy notices could be validly and effectively served by registered post and by “electronic mail”.1
In the case of service by email, the bankruptcy notice was taken to be served at the time the relevant email attaching the bankruptcy notice was “transmissioned” to the recipient judgment debtor.
However, the service provisions of the new Bankruptcy Regulations have been amended to remove all reference to service by ‘electronic mail’.
Pursuant to regulation 102 of the Bankruptcy Regulations, bankruptcy notices may only be served in the following ways:
- by courier; or
- by leaving it at a document exchange.
There has been no explanation as to the basis for or purpose of this amendment and the fact of the removal of the reference to ‘electronic mail’ as a permitted means of service of a bankruptcy notice has not been properly highlighted to practitioners.
In our view, on the face of it, these amendments make available to debtors who have received a bankruptcy notice by email, a reasonable basis for applying to set aside a bankruptcy notice (or creditor’s petition) on the basis that service has not been validly effected.
Looking a little deeper
(1) Regulation 102 of the Bankruptcy Regulations does however refer readers (by way of a ‘Note’ contained in the regulation) to section 28 of the Acts Interpretation Act 1901 (Cth) (Acts Interpretation Act):Unless the contrary intention appears, if a document is required or permitted by the Act or this instrument to be given or sent to, or served on, a person (other than the Inspector General, the Official Receiver or the Official Trustee), the document may be:
(a) sent by a courier service to the person at the address of the person last known to the person serving the document; or
(b) left, in an envelope or similar packaging marked with the person’s name and any relevant document exchange number, at a document exchange where the person maintains a document exchange facility.
Note: See also section 28A of the Acts Interpretation Act.
(2) In the absence of proof to the contrary, the document is taken to have been received by, or served on, the person when the document would, in the due course of business practice, be delivered to that address or document exchange.
According to the Bankruptcy Regulations’ Explanatory Statement issued by the Assistant Minister to the Attorney- General under the Bankruptcy Act, the ‘Note’ in Regulation 102, “clarifies that the methods of service under section 28A of Acts Interpretation Act also apply to the [Bankruptcy] Act and [Bankruptcy] Regulations. This includes personal service, service by post and service by electronic communication.”
Section 28A of the Acts Interpretation Act permits service in some circumstances by personal service or pre-paid post to the last known address for service and itself contains a further note referring to the Electronic Transactions Act 1999 Cth (ET Act):
(1) For the purposes of any Act that requires or permits a document to be served on a person, whether the expression “serve”, “give” or “send” or any other expression is used, then the document may be served:
(a) on a natural person:
(i) by delivering it to the person personally; or
(ii) by leaving it at, or by sending it by pre-paid post to, the address of the place of residence or business of the person last known to the person serving the document; or
(b) on a body corporate–by leaving it at, or sending it by pre-paid post to, the head office, a registered office or a principal office of the body corporate.
Note: The Electronic Transactions Act 1999 deals with giving information in writing by means of an electronic communication.
(2) Nothing in subsection (1):
(a) affects the operation of any other law of the Commonwealth, or any law of a State or Territory, that authorises the service of a document otherwise than as provided in that subsection; or
(b) affects the power of a court to authorise service of a document otherwise than as provided in that subsection.
Section 9 of the ET Act authorises the use of electronic means (i.e. email) when required by commonwealth law to “give”,2 “information in writing”, including the valid service of notices by email,3 if:
9(1)(a) in all cases—at the time the information was given, it was reasonable to expect that the information would be readily accessible so as to be useable for subsequent reference; and
9(1)(d) if the information is required to be given to a person who is neither a Commonwealth entity nor a person acting on behalf of a Commonwealth entity—the person to whom the information is required to be given consents to the information being given by way of electronic communication.
That is, if the recipient of a bankruptcy notice consents to its receipt by email then electronic service will be a valid method of service.
This consent requirement was recently considered in Pegios in his own capacity and as trustee for Pegios Superannuation Fund v Arambasic [2022] FedCFamC2G 17, where a bankruptcy notice was served on a debtor (the respondent) via email. In that case, the Court was not satisfied that valid service of the bankruptcy notice under Regulation 102 of the Bankruptcy Regulations was effected despite the respondent previously expressing consent to service via email to the service of documents relating to preceding NSW District Court proceedings.4
In his reasons, Judge Humphreys was not satisfied that the respondent consented to the service of the bankruptcy notice via email, and stated that it was unclear whether the original consent that the respondent gave was related to electronic service as compared to personal service.5 Judge Humphreys concluded that the non-compliant service of the bankruptcy notice could not be cured by section 306 of the Bankruptcy Act (a provision which cures formal defects or irregularities from invalidating proceedings in certain circumstances) even in circumstances where the bankruptcy notice was actually received,6 and that the need for strict compliance with the Bankruptcy Regulations cannot be waived by the debtor.7
The judgment indicates that express consent to receive the bankruptcy notice is required to ensure that the bankruptcy notice is not later challenged or rendered invalid by virtue of ineffective service.
Summary
It is recommended that bankruptcy notices are always served by:
- courier to the last known address of the debtor; or
- leaving it in envelope marked with the debtor’s name and document exchange number at the document exchange where the debtor maintains an exchange facility; or
- sending by registered post to the person at the address of the person last known to the person serving the document; or
- personal service.
Whilst email service may not be fatal to an application for a sequestration order, it is likely to involve an unnecessary layer of cost to the creditor in terms of satisfying the Court that the bankruptcy notice was in fact validly served.
For more information, please contact the authors:
Rachel Ross | Senior Associate
Monique Vincent | Solicitor
Footnotes
- Regulation 16.01(1) of the Bankruptcy Regulations 1996 (Cth).
- Which pursuant to section 28A Acts Interpretation Act includes “serve” or “send”.
- See section 9(5)(c) of the ET Act which says that the “giving of information” for the purposes of section 9 includes, but is not limited to the “giving, sending or serving a notification”.
- Pegios in his own capacity and as trustee for Pegios Superannuation Fund v Arambasic [2022] FedCFamC2G 17 at [19].
- Ibid. See also [10] to [15].
- Ibid [20]-[21].
- Re Robert Henry Hanlin Ex Parte: South Properties Development Pty Ltd [1985] FCA 447) at [22].
Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.
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