From 1 April 2021 the Bankruptcy Regulations 1996 (Cth) (Old regulations) were replaced by the Bankruptcy Regulations 2021 (Cth) (Bankruptcy settlement). While the various changes introduced by the new Bankruptcy Rules have been widely touted as minor and administrative in nature, there is one key change regarding the method of serving notices of bankruptcy.
What is a bankruptcy notice?
The bankruptcy notice is a formal and definitive demand from a creditor obliging the debtor either to:
- pay the debt due;
- enter into an agreement with the creditor to pay the debt; Where
- request the cancellation of the bankruptcy notice,
within 21 days of service of the notice of bankruptcy.
Failure to do any of these things constitutes an act of bankruptcy under section 40 of the Bankruptcy Act 1966 (Cth) (Bankruptcy law) and allows a creditor to make a “creditor’s petition” to the Federal Court for orders placing the debtor in bankruptcy (by making a receivership order).
Since a “deed of bankruptcy” (under Section 40 of the Bankruptcy Act) is calculated on the basis of the date of service, it is essential that practitioners do not find themselves in a situation where the validity of service is challenged by the debtor on the ground that the method used was not one permitted by the Bankruptcy Rules.
Given the significant consequences that a notice of bankruptcy is likely to have on the debtor, the court must ensure that the notice of bankruptcy has been validly and effectively served on the debtor within 6 months of its issuance by the Australian Financial Security Authority (AFSA) in accordance with the requirements set out in the Bankruptcy Act and the Bankruptcy Regulations.
Under the old rules, notices of bankruptcy could be validly and effectively served by registered mail and by “electronic mail”..1
If served by e-mail, the Bankruptcy Notice was deemed served at the time the e-mail corresponding to the Bankruptcy Notice was “transmitted” to the receiving judgment debtor.
However, the service provisions of the new Bankruptcy Rules have been amended to remove any reference to service by “electronic mail”.
Pursuant to Rule 102 of the Bankruptcy Regulations, notices of bankruptcy may only be served in the following manner:
- by mail; Where
- leaving it to an exchange of documents.
There was no explanation as to the basis or purpose of this amendment and the deletion of the reference to “electronic mail” as an authorized means of giving notice of bankruptcy not been properly highlighted to practitioners.
In our view, on their face, these amendments provide debtors who have received an e-mailed bankruptcy notice with a reasonable basis to seek rescission of a bankruptcy notice (or creditor’s petition) on the basis that service n was not validly carried out.
Looking a little further
(1) Regulation 102 of the Bankruptcy Regulations, however, refers readers (by means of a “note” contained in the regulation) to section 28 of the Statutes Interpretation Act of 1901 (Cth) (Statute Interpretation Act):Unless the contrary intention appears, if a document is required or permitted by law 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 courier service to the person at the address of the person last known to the person serving the document; Where
(b) left, in an envelope or similar wrapper bearing the person’s name and any relevant document exchange number, at a document exchange where the person has a document exchange facility.
Note: See also section 28A of the Statute Interpretation Act.
(2) In the absence of evidence to the contrary, the document shall be deemed to have been received by or served on the person where, in the course of trade, the document would be delivered to that address or to that exchange of documents .
According to the Bankruptcy Regulations Explanatory statement issued by the Assistant Minister for the Attorney General under the Bankruptcy Act, the “note” to Regulation 102, “clarifies that the methods of service under section 28A of the Statute Interpretation Act also apply to the [Bankruptcy] act and [Bankruptcy] Regulations. This includes personal service, mail service and electronic service. »
Section 28A of the Statute Interpretation Act permits service in certain circumstances by personal service or prepaid mail to the last known address for service and itself contains an additional note referring to the Electronic Transactions Act 1999 Cth (ET Law):
(1) For the purposes of any law which requires or permits a document to be served on a person, whether the expression “serve”, “give” or “send” or any other expression is used, the document may then be served :
a) on a natural person:
(i) personally delivering it to the person; Where
(ii) leaving it at, or Sending in progress by postage paid to the address of the place of residence or activity of the last person known to the person serving the document; Where
(b) on a body corporate – leaving it to, or Sending in progress by prepaid post to the registered office, at a registered office or at a principal office of the legal entity.
Note the Electronic Transactions Act 1999 deals with the provision of information in writing by means of electronic communication.
(2) Nothing in subsection (1):
(a) affects the operation of any other law of the Commonwealth, or any law of any State or Territory, which authorizes the service of a document otherwise than as provided in this subsection; Where
(b) interferes with the power of a court to authorize service of a document other than in the manner provided for in that subsection.
9(1)(a) in all cases—at the time the information was given, it was reasonable to expect that it would be readily available so that it could be consulted later; and
9(1)(d) if the information is 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 to be given consents information provided by electronic communication.
That is, if the recipient of a bankruptcy notice consents to receiving it by electronic mail, electronic service will be a valid method of service.
This consent requirement has recently been considered in Pegios in its own capacity and as trustee of the Pegios Superannuation Fund against Arambasic  FedCFamC2G 17, where a notice of bankruptcy was served on a debtor (the respondent) by email. In that case, the Court was not satisfied that valid service of the notice of bankruptcy under Regulation 102 of the Bankruptcy Regulations had been effected despite the fact that the defendant had previously expressed consent to service by mail. electronic service of documents relating to previous NSW District Court proceedings.4
In his reasons, Justice Humphreys was not convinced that the respondent had consented to the service of the bankruptcy notice by email and said that it was not clear whether the initial consent that the respondent had given was related to electronic significance versus personal significance.5 Judge Humphreys held that the improper service of the bankruptcy notice could not be cured by Section 306 of the Bankruptcy Act (a provision which remedies defects in the form or irregularities in the invalidation proceedings in certain circumstances) even in circumstances where the notice of bankruptcy has actually been received. ,6 and that the need for strict compliance with the Bankruptcy Regulations cannot be waived by the debtor.7
The judgment states that express consent to receive the bankruptcy notice is required to ensure that the bankruptcy notice is not later challenged or rendered invalid by reason of ineffectual service.
It is recommended that notices of bankruptcy always be served by:
- mail to the last known address of the debtor; Where
- leave it in an envelope bearing the name of the debtor and the document exchange number at the document exchange where the debtor has an exchange service; Where
- sending by registered mail to the person at the address of the last person known to the person serving the document; Where
- personal service.
Although email service is not fatal to a receivership order application, it is likely to involve a layer of unnecessary cost to the creditor in terms of satisfying the court that the bankruptcy notice has in fact has been validly notified