Skouloudis v St George Bank Ltd [2008] FCA 1765 (26 November 2008): invalidity of bankruptcy notice, amending a notice

November 30, 2008 |

In the Federal Court Skouloudis v St George Bank Ltd Edmonds J provides a detailed analysis of the operation of section 41(5) of the Bankruptcy Act 1966. Through it a debtor may set aside a Bankruptcy Notice.

Section 41(5) provides:

(5)  A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.

St George Bank, the respondent. obtained judgment in the sum of $2,176,026.95 plus costs in July 2001.  Skouloudis, the appelllant, repaid $1,788,389 by 2004.  Just before the 6 year bar on issuing a notice on a judgment St George issued a bankruptcy notice for $2,176,026.95.  Skouloudis served a 41(5) notice claiming the Bankruptcy Notice contained an overstatement of the amount because it did not give credit for payments made.

After considering the authorities at length Edmonds J key findings of are:

  • an overstatement of the amount actually due in a bankruptcy notice renders it invalid provided the debtor complies with the time constraints in 41(5) (see par [23] – [24]);
  • if a bankruptcy is declared invalid that invalidity applies from the date of issue, not from the date it is declared invalid (par [25]);
  • It is open for a Court to amend a Bankruptcy Notice prior to the debtor giving notice under section 41(5).  But once the notice is provided and the Bankruptcy Notice is found to be invalid, it is not a notice under the Act and therefore incapable of amendment (see the logical reasoning at [28] – [35]).

The other salient lesson is that the creditor should be wary of issuing a Bankruptcy Notice at a time so proximate to the 6 year limit.

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