The Federal Court of Australia recently considered whether a Bankruptcy Notice with an arithmetical error in relation to the exchange rate and currency conversion contained a formal defect or irregularity that could be cured by section 306 of the Bankruptcy Act 1966 (Cth) (Act).
This case concerns a judgment awarded by the High Court of the Republic of Singapore in favour of Paul Gannaway against David Coleman on 15 October 2021.
The terms of the Singapore Judgment were that Mr Coleman was to pay Mr Gannaway:
Mr Gannaway then registered the Singapore Judgment in the Supreme Court of New South Wales on 18 February 2022 (NSW Judgment). The NSW Judgment provided for Mr Coleman to pay Mr Gannaway the following sums:
Mr Gannaway’s solicitors then prepared the Bankruptcy Notice using the Australian Financial Security Authority (AFSA) website. The Bankruptcy Notice was only based on certain amounts in the registered NSW Judgment being the Claim amount of SG$825,000.00 (also the principal SG$ amount in the Singapore Judgment) plus the associated interest amount in the NSW Judgment of SG$3,390.57.
No US$ amounts were sought in the Bankruptcy Notice which was issued on 24 October 2022 by the Official Receiver (see below) which included the currency conversions and annexed both the Singapore and NSW Judgments.
View the Bankruptcy Notice here.
Mr Coleman applied to set aside the Bankruptcy Notice as the calculations included in Note A were, on the face of the document, incorrect because the foreign currency amount of $828,390.57 (as expressed in Singaporean dollars) when applied to the RBA exchange rate (of 1.11) did not equal $923,614.07, but rather $919,513.53.
It was submitted that this error amounted to non-compliance with regulation 12(2)(b) of the Bankruptcy Regulations 2021 (Cth) (Regulations) which requires that the Bankruptcy Notice includes:
To do this, the Bankruptcy Notice needed to list the exchange rate (of Singaporean to Australian dollars) calculated by the Reserve Bank of Australia (RBA). At the time, the correct exchange rate was 1.11495. Whilst the converted total amount of AU$923,614.07 was correct as it was calculated on the correct exchange rate, the Bankruptcy Notice did not reference the correct exchange rate.
It was submitted on Mr Gannaway’s behalf that although there was an error contained in the Bankruptcy Notice, it was confined to the ‘RBA exchange rate’ section of the Bankruptcy Notice which was caused by the AFSA website automatically shortening the exchange rate to two decimal places when producing the Notice (despite underlying calculations being based on the exchange rate at 5 decimal places).
It was further submitted that:
The Court noted that a Bankruptcy Notice could be a nullity if it fails to meet an essential requirement under the Act, irrespective of whether the Bankruptcy Notice could also be found to be reasonably misleading to a debtor. It found that the nature of the above error was fundamental enough to constitute a failure to meet an essential requirement under the Act which rendered the Bankruptcy Notice defective.
Although it was not necessary to also consider whether the defect resulted in the Bankruptcy Notice being capable of misleading Mr Coleman, the Court also found, on the present circumstances, that someone could reasonably have been misled as to the amounts demanded in the Bankruptcy Notice.
Other arguments had been put forward on Mr Coleman’s behalf in support of setting aside the Bankruptcy Notice which the Court considered to be without merit.
The Court appears to have sympathised with the position that Mr Gannaway found himself in. Significantly, the Court observed that Mr Gannaway’s solicitors could not be criticised for their diligence in preparing the Bankruptcy Notice and that the defect appears to have been caused by an inherent shortcoming of the AFSA’s website. Queries were also raised as to whether there was an alternative way to apply for the issue of the Bankruptcy Notice such as lodging a hard copy which referenced the correct exchange rate.
Despite all of this, the Bankruptcy Notice was set aside, and Mr Gannway was ordered to pay Mr Coleman’s costs.
The form of a Bankruptcy Notice requires strict compliance with the Act and there are limited circumstances where a defect can be cured. In contrast, there are many examples where a Bankruptcy Notice has been found to be defective and set aside – even through no fault of the creditor or its solicitors. Creditors need to be aware of the pitfalls of using the AFSA website when preparing a Bankruptcy Notice especially when a foreign judgment is involved which requires currency conversion calculations.
If you found this insight article useful and you would like to subscribe to Gadens’ updates, click here.
Barbara-Ann Sim, Partner
Jacob Stacey, Graduate