FEDERAL COURT OF AUSTRALIA

McInerney, in the matter of Ghougassian v Ghougassian [2020] FCA 1230

ORDERS

THE COURT ORDERS THAT:

1.    A sequestration order under the Bankruptcy Act 1966 (Cth) (Act) be made against the estate of Daniel Ghougassian.

2.    The applicants’ costs be taxed and paid from the bankrupt estate of Daniel Ghougassian in accordance with the Act.

THE COURT NOTES THAT:

3.    The date of bankruptcy is 1 October 2019.

4.    A consent to act as trustee signed by David John Kerr has been filed under s 156A of the Act.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    A sequestration order under the Bankruptcy Act 1966 (Cth) (Act) be made against the estate of Michael Ghougassian.

2.    The applicants’ costs be taxed and paid from the bankrupt estate of Michael Ghougassian in accordance with the Act.

THE COURT NOTES THAT:

3.    The date of bankruptcy is 1 October 2019.

4.    A consent to act as trustee signed by David John Kerr has been filed under s 156A of the Act.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 14 February 2020 John McInerney and Philip Campbell-Wilson in their capacity as liquidators of St Gregory’s Armenian School Inc (in liquidation) (St Gregory’s) (Liquidators) commenced two proceedings by filing creditor’s petitions seeking in each case a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) (Act) against, in one proceeding, the estate of Dr Daniel Ghougassian and, in the other, Mr Michael Ghougassian. Without intending any disrespect, for ease I will refer to Daniel Ghougassian and Michael Ghougassian as Daniel and Michael respectively in these reasons.

2    Daniel and Michael are brothers. They have each filed an amended notice stating grounds of opposition to the creditor’s petitions filed by the Liquidators (Amended Notices of Opposition) which, save for some additional grounds raised by Michael because of facts which are unique to him, raise the same grounds. Given the commonality between the two applications, including as to the relevant background facts and judgments on which the bankruptcy notices served on each of Daniel and Michael were based, they were heard together.

BACKGROUND

3    There is a lengthy factual background to these applications, much of which is set out in Ghougassian v Arnautovic, in the matter of Ghougassian [2019] FCA 1569 (Ghougassian (No 1)) which concerned the unsuccessful applications brought by Daniel and Michael to set aside the bankruptcy notices served on each of them by the then liquidator of St Gregory’s, Sule Arnautovic. It is those bankruptcy notices on which the Liquidators rely to ground the act of bankruptcy which they contend was committed by each of Daniel and Michael.

4    The following background facts are uncontroversial.

The appointment of liquidators to St Gregory’s and the litigation that followed

5    On 21 June 2010 St Gregory’s was wound up under s 51(1) of the Associations Incorporation Act 1984 (NSW) by order of the Supreme Court of New South Wales (Supreme Court): see Vartanians v St. Gregory’s Armenian School Inc [2010] NSWSC 701. Roderick Mackay Sutherland of Jirsch Sutherland was appointed as the liquidator of St Gregory’s. As described below he was succeeded by Mr Arnautovic and then the Liquidators. Since the time of the winding up of St Gregory’s there has been a significant amount of litigation between its successive liquidators and the Ghougassians.

6    On 9 October 2012 the Supreme Court made orders dismissing Michael’s application to have Mr Sutherland replaced as the liquidator of St Gregory’s and requiring Michael to pay Mr Sutherland’s costs: see In the Matter of St Gregory’s Armenian School (in liq) [2012] NSWSC 1215. Mr Sutherland’s costs were assessed at $195,553.50.

7    On 5 August 2013 Mr Sutherland registered the costs of the costs assessment referred to in the preceding paragraph, being $4,568.73, as a judgment of the Local Court of New South Wales in proceeding 2013/237106 (2013 Judgment).

8    On 31 March 2014 Mr Sutherland registered the assessed costs referred to at [6] above, being $195,553.50, as a judgment of the Supreme Court in proceeding 2014/96265 (2014 Judgment).

9    On 7 October 2015 Black J delivered judgment in Supreme Court proceeding 2013/386207 brought by Daniel and Michael under s 1321 of the Corporations Act 2001 (Cth) (Corporations Act): see In the matter of St Gregory’s Armenian School Inc [2015] NSWSC 1465. Daniel and Michael had sought orders setting aside decisions made by Mr Sutherland in his capacity as liquidator of St Gregory’s rejecting the whole of Michael’s proof of debt and part of Daniel’s proof of debt. Mr Sutherland as liquidator and St Gregory’s had also brought a cross-claim against Michael and his wife, Katrin Ghougassian, in respect of payments made by St Gregory’s to Michael and entities associated with him. Black J found (at [275]) that Michael failed and Daniel substantially failed in their applications to set aside Mr Sutherland’s decisions and that Mr Sutherland and St Gregory’s failed in their cross-claim.

10    On 16 November 2015 Black J delivered judgment in relation to the costs of the proceeding referred to in the preceding paragraph: see In the matter of St Gregory's Armenian School Inc [2015] NSWSC 1701 at [1], [17]. His Honour relevantly made the following orders:

4.    [Daniel and Michael] jointly and severally pay the liquidator’s costs of the Originating Process on the ordinary basis as agreed or as assessed.

…

6.    [The liquidator and St Gregory’s] pay [Michael and Mrs Ghougassian’s] costs of the Cross-Claim on an ordinary basis as agreed or as assessed.

7.    The Court directs that the assessment of costs as provided by Orders 4 and 6 be conducted on the basis that at least 75% of the hearing time and preparation time is treated as attributable to [Daniel and Michael’s] claims with the remainder treated as attributable to the Cross-Claim.

11    On 26 February 2016, pursuant to orders made by the Supreme Court, Mr Arnautovic of Jirsch Sutherland replaced Mr Sutherland as liquidator of St Gregory’s.

12    On 23 August 2017 Mr Arnautovic obtained judgment in Supreme Court proceeding 2017/237676 for $320,506.36 (2017 Judgment) in respect of his assessed costs following the costs order made by Black J in favour of the liquidator (see [10] above). The 2017 Judgment was given in favour of “Sule Arnautovic in his capacity as Liquidator of St Gregory’s Armenian School Inc (In Liquidation)” against Daniel and Michael. The history as to how this came to be was explained in Ghougassian (No 1) at [27]-[30] and is set out at [74] below.

The bankruptcy notices issued to Daniel and Michael

13    On 25 August 2017 the Official Receiver issued bankruptcy notice BN 216289 against Daniel for an amount of $315,166.60 which was based upon the 2017 Judgment in favour of Mr Arnautovic and which allowed for one offsetting claim (Daniel’s Bankruptcy Notice).

14    On 28 August 2017 the Official Receiver issued bankruptcy notice BN 216294 against Michael for an amount of $341,480.19 which was based upon the 2013 Judgment, the 2014 Judgment and the 2017 Judgment and which allowed for various offsetting claims (Michael’s Bankruptcy Notice).

15    Among other things, Daniel’s Bankruptcy Notice and Michael’s Bankruptcy Notice (collectively, Bankruptcy Notices) each included the following information:

(1)    on page 1:

(a)    the creditor was named as:

Mr Sule Arnautovic in his capacity as liquidator of St Gregory’s Armenian School Inc (In Liquidation)

(b)    the creditor’s address and postcode were recorded as:

Address

C/-Jirsch Sutherland, Level 27, 259 George Street, Sydney, NSW, Australia

Postcode

2000

(2)    on page 2 at item 2 payment of the debt could be made to:

Mr Sule Arnautovic in his capacity as liquidator of St Gregory’s Armenian School Inc (In Liquidation)

C/-Jirsch Sutherland, Level 27, 259 George Street, Sydney, NSW 2000, Australia

Phone: +61 02 92368333

Email: SuleA@jirschsutherland.com.au

16    On 24 September 2017 Daniel and Michael each filed an application in this Court to set aside, in the case of Daniel, Daniel’s Bankruptcy Notice, and, in the case of Michael, Michael’s Bankruptcy Notice (Bankruptcy Notice Applications).

17    On 6 February 2018 the Bankruptcy Notice Applications were heard together by Farrell J.

The appointment of the Liquidators to St Gregory’s, the orders made in relation to the Bankruptcy Notice Applications and subsequent events

18    On 11 January 2019 Mr Arnautovic applied to the Supreme Court for approval to resign and to be replaced by the Liquidators. Orders to that effect were made.

19    On 23 September 2019 Farrell J made orders extending the time for compliance by each of Daniel and Michael with the Bankruptcy Notices up to and including 30 September 2019 and dismissing the Bankruptcy Notice Applications with costs: see Ghougassian (No 1).

20    On 27 September 2019 the Liquidators obtained judgment against Daniel and Michael in Supreme Court proceeding 2019/299647 (2019 Proceeding) for an amount of $327,010.09 (2019 Judgment) based on registration of a costs certificate resulting from an unpaid costs order in Supreme Court proceeding 2015/190855.

21    Neither Daniel nor Michael paid the amount sought, in the case of Daniel, in Daniel’s Bankruptcy Notice and, in the case of Michael, in Michael’s Bankruptcy Notice by 30 September 2019 or, based on the evidence before me, has paid either of those amounts subsequently.

22    On 18 November 2019, on the application of the Liquidators in the 2019 Proceeding, the Supreme Court issued a writ for the levy of property against Daniel and Michael with respect to the 2019 Judgment. On 5 December 2019 Daniel and Michael filed a notice of motion seeking a stay of enforcement of that writ.

23    On 9 March 2020 Gleeson J made the following orders in the 2019 Proceeding (March 2020 Orders) in respect of the notice of motion referred to in the preceding paragraph:

(1)    Subject to [Michael] undertaking to the Court and to the [Liquidators] to take all necessary steps to commence and pursue with due expedition the assessment of the costs order in his favour in proceedings 2013/386207, being order 6 made on 16 November 2015, order that execution on the judgment debt entered in this proceeding on 27 September 2019 for all amounts in excess of $240,000 be stayed pending the assessment of the costs order in proceedings 2013/386207 or earlier further order.

(2)    There be no order as to costs of the [Daniel and Michael’s] Notice of Motion filed 5 December 2019.

See John McInerney and Phillip Campbell-Wilson in their capacity as liquidators of St Gregory’s Armenian School Inc v Michael Ghougassian & Anor [2020] NSWSC 197 at [62].

24    The effect of order 1 of the March 2020 Orders was that the 2019 Judgment was stayed for all amounts in excess of $240,000 subject to Michael undertaking to the Court and the Liquidators to take all necessary steps to commence and pursue the assessment of the costs order in his favour i.e. order 6 made by Black J on 16 November 2015 (see [10] above).

25    On 16 March 2020 Hegarty Legal, the solicitors for the Liquidators, sent an email to Mr Balzola, the solicitor for Daniel and Michael, which after referring to order 1 of the March 2020 Orders relevantly included:

In these circumstances, the Plaintiffs are entitled to proceed to enforce the judgment debt entered in this proceeding on 27 September 2019 in the amount of $240,000. As such, orders made by Gleeson J on 9 March 2020 do not prevent Plaintiffs to proceed with their examinations which are listed tomorrow.

In any case, to date no undertaking was provided to our clients from Mr Michael Ghougassian to take all necessary steps to commence and pursue with due expedition the assessment of the costs order in his favour in proceedings 2013/386207.

…

With respect to your client’s foreshadowed costs assessment application, we request that your client make a costs assessment application in accordance with the approved form pursuant to section 74 of the Legal Profession Uniform Law Application Act 2014 (NSW) within 7 days from the date of this email. If your client’s application is not provided to us by 5pm, 23 March 2020, we presume that your clients do not intend to pursue the assessment of the costs order in proceedings 2013/386207 and the execution on the judgment dated 27 September 2019 for all amounts in excess of $240,000 is not stayed.

26    As at 8 July 2020 Mr Balzola had not provided a response to the email referred to in the preceding paragraph and no undertaking had been provided by Michael to the effect of that required by order 1 of the March 2020 Orders.

LEGISLATIVE FRAMEWORK

27    Section 43(1) of the Act provides that the Court may, on a petition presented by a creditor, make a sequestration order against the estate of a debtor where the debtor has committed an act of bankruptcy and at the time when the act of bankruptcy was committed the debtor was personally present or ordinarily resident in Australia, had a dwelling-house or place of business in Australia, was carrying on business in Australia, either personally or by means of an agent or manager, or was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager.

28    Section 44(1) of the Act sets out the preconditions to the presentation of a petition against a debtor as follows:

(1)    A creditor’s petition shall not be presented against a debtor unless:

(a)    there is owing by the debtor to the petitioning creditor a debt that amounts to the statutory minimum or 2 or more debts that amount in the aggregate to the statutory minimum, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to the statutory minimum;

(b)    that debt, or each of those debts, as the case may be:

(i)    is a liquidated sum due at law or in equity or partly at law and partly in equity; and

(ii)    is payable either immediately or at a certain future time; and

(c)    the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.

29    Section 40 of the Act sets out when a debtor commits an act of bankruptcy including:

(1)    A debtor commits an act of bankruptcy in each of the following cases:

…

(g)    if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

(i)    where the notice was served in Australia—within the time fixed for compliance with the notice; or

(ii)    where the notice was served elsewhere—within the time specified by the order giving leave to effect the service;

comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

…

(3)    For the purposes of paragraph (1)(g):

…

(d)    a person who is for the time being entitled to enforce a final judgment or final order for the payment of money shall be deemed to be a creditor who has obtained a final judgment or final order;

…

30    The relevant act of bankruptcy relied on by the Liquidators is, in the case of Daniel, his failure to comply with Daniel’s Bankruptcy Notice and, in the case of Michael, his failure to comply with Michael’s Bankruptcy Notice. Each of Daniel and Michael respectively raise issues in their Amended Notices of Opposition in relation to the form of the bankruptcy notice served on each of them. Section 41 of the Act concerns, among other things, the issue and form of bankruptcy notices and relevantly provides:

(1)    An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:

(a)    a final judgment or final order that:

(i)    is of the kind described in paragraph 40(1)(g); and

(ii)    is for an amount of at least the statutory minimum; or

(b)    2 or more final judgments or final orders that:

   (i)    are of the kind described in paragraph 40(1)(g); and

(ii)    taken together are for an amount of at least the statutory minimum.

(2)    The notice must be in accordance with the form prescribed by the regulations.

…

(3)    A bankruptcy notice shall not be issued in relation to a debtor:

(a)    except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor;

…

(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 fixed for compliance with the notice, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.

31    Section 52 of the Act concerns proceedings on a creditor’s petition and relevantly provides:

(1)    At the hearing of a creditor’s petition, the Court shall require proof of:

(a)    the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);

(b)    service of the petition; and

(c)    the fact that the debt or debts on which the petitioning creditor relies is or are still owing;

and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

…

(2)    If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:

  (a)    that he or she is able to pay his or her debts; or

(b)    that for other sufficient cause a sequestration order ought not to be made;

it may dismiss the petition.

THE AMENDED NOTICES OF OPPOSITION

32    As observed above, Daniel and Michael’s Amended Notices of Opposition are substantially in the same form. However, given events which transpired since their filing, some of the grounds included therein are not pressed. By the remaining grounds Daniel and Michael principally seek to establish either that they have not committed an act of bankruptcy, such that one of the preconditions to the presentation of the creditor’s petitions has not been met (see s 44(1)(c) of the Act), they are able to pay their debts or there is other sufficient cause why a sequestration order ought not to be made (see s 52(2) of the Act). Daniel and Michael do not challenge the Liquidators’ standing as creditors for the purposes of the creditor’s petitions in light of the 2019 Judgment.

33    There is a degree of overlap between the various grounds. Subject to that, for ease and to the extent possible, I will address the grounds raised in the same order and by adopting the same headings as adopted by Daniel and Michael in their written submissions.

Company in liquidation (or in this case incorporated association)

34    At para 30 of the Amended Notices of Opposition Daniel and Michael each allege that:

The named applicants in the Creditor’s Petitions are not the correct applicants and as such the petition is defective.

35    The named applicants in each of the creditor’s petitions are the Liquidators.

Parties’ submissions

36    Daniel and Michael submit that this ground arises because the creditor’s petitions have been brought in the names of the Liquidators and not St Gregory’s or even in the name of the same creditor on whose application the Bankruptcy Notices were issued, Mr Arnautovic. Daniel and Michael submit that the relevant judgments are not in the names of the Liquidators but in the names of their predecessors. They say that it follows that, to the extent that such judgments can be relied on by the Liquidators, they could only do so because of their status as property/rights of St Gregory’s. They contend this is so because, absent an application to the Court pursuant to s 474(2) of the Corporations Act, the property of St Gregory’s does not vest in the Liquidators personally.

37    Daniel and Michael submit that, in light of s 474(2) of the Corporations Act, the proceedings should have been brought by St Gregory’s and not the Liquidators personally, absent some order vesting the rights in them. Daniel and Michael contend that this, in any event, would be the normal course of events given that s 477(2)(a) of the Corporations Act provides that a liquidator of a company may “bring or defend any legal proceeding in the name and on behalf of the company”.

38    Daniel and Michael submit that, as there has been no order vesting the relevant judgments in the Liquidators personally, it follows that the petitions must be amended to substitute St Gregory’s as the applicant in each. They say that while they could not seriously resist such an amendment, r 8.22 of the Federal Court Rules 2011 (Cth) would apply such that the proceeding in each case would be taken to have started on the day of the amendment. Daniel and Michael say that in those circumstances it would follow that each of the creditor’s petitions was presented outside of the six month window in relation to the purported act of bankruptcy, with the result that each petition should be dismissed with costs.

39    The Liquidators submit that they are the correct applicants for each of the creditor’s petitions in that they amply satisfy the requirements of s 43 and s 44 of the Act and have standing to present a petition as a “creditor”. The Liquidators submit that Daniel and Michael’s contention that St Gregory’s is the proper petitioning creditor, relying upon Growden v Wiltshire (1935) 52 CLR 286 (Growden v Wiltshire), is misplaced for reasons which have already been determined in relation to the Bankruptcy Notices in Ghougassian (No 1) at [134]. They contend that the absence of a vesting order pursuant to s 474(2) of the Corporations Act is irrelevant in circumstances where the judgments relied upon are in the names of the current and former liquidators of St Gregory’s and not St Gregory’s itself. They say that they, not St Gregory’s, are Daniel and Michael’s creditors.

40    The Liquidators also submit that, while s 477(2)(a) of the Corporations Act permits a liquidator of a company to bring a proceeding in the name of a company, the section does not require a liquidator to bring a creditor’s petition in the name of the company where he or she is the judgment creditor, as is the case here in relation to the 2019 Judgment, and/or where the Liquidators are entitled to the benefit of the judgments in favour of Mr Arnautovic.

Consideration

41    By this ground Daniel and Michael contend that the proper petitioning creditor is either St Gregory’s or, in the alternative, Mr Arnautovic at whose request the Bankruptcy Notices were issued.

42    A similar issue was considered in Ghougassian (No 1), albeit in relation to the Bankruptcy Notices. There Daniel and Michael contended that Mr Arnautovic, who was the liquidator of St Gregory’s at the time the Bankruptcy Notices were issued, was not the judgment creditor for the judgments on which those notices were based, as required by s 40(1)(g) of the Act. Daniel and Michael rely on [126] of Ghougassian (No 1) where Farrell J observed that:

The authors of McDonald, Henry & Meek Australian Bankruptcy Law & Practice, McQuade P, Gronow M (ed) (Thomson Reuters, subscription service) at [40.1.195] (update 236) states [sic] that where a creditor is a company in liquidation, the bankruptcy notice should be issued in the name of the company, although it may require the debtor to pay or compound to the satisfaction of the liquidator. It goes on to refer to the High Court’s decision in Growden v Wiltshire.

43    Her Honour went on to consider Growden v Wiltshire. As her Honour records at [127], in that case an order was made by Piper J as the result of a misfeasance summons taken out pursuant to s 179 of the Companies Act 1892 (SA) (SA Companies Act) against Hurtle Clarence Growden and others by Mr Wiltshire in his capacity as the official liquidator of Coo-ee Pictures Ltd (in liquidation). Relevantly, Mr Growden and other named persons were ordered to pay certain amounts within 14 days to the respondent as liquidator. Mr Growden was jointly and severally liable for a part and solely liable for the balance of the total ordered to be paid.

44    The order was served on Mr Growden who did not comply with it. Mr Wiltshire then applied for the issue of a bankruptcy notice against Mr Growden. In his application and the bankruptcy notice which was thereupon issued, Mr Wiltshire was described as “the official liquidator of Coo-ee Pictures Ltd”. Mr Growden alleged that the bankruptcy notice was invalid because it was not issued “in the name of and on behalf of” the company, and, therefore, was not a proceeding properly taken by the liquidator of the company within s 117 of the SA Companies Act, and because the order made by Piper J was not a “final judgment or order” within the meaning of s 52(j) of the Bankruptcy Act 1924-1933 (Cth) (Bankruptcy Act 1924).

45    A bankruptcy notice in similar terms was issued to Frank Leslie Growden followed by a creditor’s petition and a sequestration order was made against him. Frank Leslie Growden also alleged, for similar reasons to those raised by Mr Growden, that the sequestration order, petition and bankruptcy notice were invalid.

46    The judgments of the High Court are brief. At [128] Farrell J set out the reasons of Rich, Starke and Dixon JJ (with whom Evatt and McTiernan JJ agreed) as follows (adding emphasis and omitting footnotes):

Rich J. We think that the petition ought not to have been presented in the official liquidator’s name, but that the irregularity should be met by amendment. The bankruptcy notice we think operated to found an act of bankruptcy. The matter should be remitted to the Bankruptcy Court for the purpose of amending the petition by substituting the name of the company for that of the official liquidator, and of making all consequential amendments. Otherwise the appeals will be dismissed. No order as to costs.

Starke J. The bankruptcy notice is a sufficient compliance with the Bankruptcy Act, secs. 52 (j) and 53. But the Act requires that the petition for sequestration be presented by a creditor. The company in this case, and not the liquidator, is the creditor for that purpose.

Dixon J. I agree. In substance I think the bankruptcy notice is sufficient. In requiring payment to the official liquidator as the liquidator of the company, it follows the order of the Supreme Court upon which it is founded. It is not wrong in calling upon the debtor to secure or compound for the sum ordered to be paid to the satisfaction of the official liquidator. It would have been open to little criticism in describing the counter-claim, set-off, or cross-demand by which the debtor might comply if it had called it a counter-claim, set-off; or cross-demand against the company and not against-the liquidator. But this is an irregularity which could not have caused any substantial injustice and ought not to invalidate the bankruptcy notice (sec. 7). The case is almost covered by In re De Murrietta; Ex parte South American and Mexican Co., except that there the petition needed no amending, because it was presented in the name of the company.

It may be desirable to add that I do not disagree with the contention that sec. 52(j) does not cover a liquidator and make him a creditor in respect of a judgment debt of the company.

47    In Growden v Wiltshire the High Court found that the bankruptcy notice was sufficiently compliant with s 52(j) and s 53 of the Bankruptcy Act 1924 and that, in requiring payment to the liquidator of the company, it followed the order on which it was founded. The bankruptcy notice was sufficient to ground an act of bankruptcy. However, the High Court also found that the petition for sequestration must be presented by the creditor who, in that case, was the company and not the liquidator.

48    As Farrell J observed (at [129]-[131]), s 117 of the SA Companies Act was relevantly in the same form as s 477(2)(a) of the Corporations Act and s 52(j) of the Bankruptcy Act 1924 was in the same form as s 40(1)(g) and s 40(3)(d) of the Act. Her Honour also relevantly noted (at [134]) that Growden v Wiltshire was a case where the judgment debts were obtained in actions taken by the liquidator to recover debts owed to the company but that the facts of this case are different. In this case, the 2013 Judgment, 2014 Judgment and 2017 Judgment were obtained in proceedings brought by Daniel and/or Michael against the liquidator and not the company in liquidation in that they arose from proceedings seeking Mr Sutherland’s removal or seeking to set aside decisions taken by Mr Sutherland in his capacity as liquidator. Her Honour thus accepted that the liquidator was the appropriate person to be named as the creditor on the Bankruptcy Notices and it was appropriate that payment be directed to Mr Arnautovic as the then liquidator, and set out the reasons why that was so.

49    Here, Daniel and Michael contend that the creditor’s petitions, as opposed to the Bankruptcy Notices, should be set aside because they are not in the name of St Gregory’s or, in the alternative, in Mr Arnautovic’s name. But, for substantially the same reasons as Farrell J found that the Bankruptcy Notices were properly issued in Mr Arnautovic’s name, the liquidator of St Gregory’s at the time, the Liquidators are the proper applicants for the purposes of the creditor’s petitions.

50    First, s 43 and s 44 of the Act (see [27]-[28] above) respectively set out the preconditions to the making of a sequestration order by the Court on a petition presented by a creditor and the conditions which must be satisfied before a creditor may present a petition. The Liquidators are “creditors” for the purposes of those sections. They are the named judgment creditors in the 2019 Judgment and have the benefit of orders made before their appointment which include judgments issued in Mr Arnautovic’s name in his capacity as the former liquidator of St Gregory’s: see Ghougassian (No 1) at [134(1)].

51    Secondly, as Farrell J pointed out, if a judgment or order directs the payment of money to a liquidator in that capacity, any bankruptcy notice issued for payment of that debt must demand payment to the liquidator in that capacity: see Ghougassian (No 1) at [134(3)], relying on Lewis v Nortex Pty Ltd (in liq) (2013) 211 FCR 483 (Nortex) at [41]. The same analysis can be applied to the creditor’s petitions issued in these proceedings.

52    Thirdly, in circumstances where the Liquidators rely on judgments issued in their, or their predecessor’s, name in their respective capacities as liquidators of St Gregory’s, s 474(2) of the Corporations Act has no role to play. That section provides:

The Court may, on the application of the liquidator, by order direct that all or any part of the property of the company vests in the liquidator and thereupon the property to which the order relates vests accordingly and the liquidator may, after giving such indemnity (if any) as the Court directs, bring, or may defend, any action or other legal proceeding that relates to that property or that it is necessary to bring or defend for the purpose of effectually winding up the company and recovering its property.

53    Contrary to Daniel and Michael’s submission, there is no requirement for the Liquidators to make an application pursuant to s 474(2) of the Corporations Act to have the judgments which are in the name of Mr Arnautovic vest in them nor, absent such an application, is it necessary for St Gregory’s to bring the proceedings. This is because, as I have already observed, the Liquidators are properly applicants. The 2019 Judgment is issued in their names and they have the benefit of judgments issued in their predecessor’s name.

54    The situation is, as the Liquidators point out, analogous to that before a Full Court of this Court in Van Reesema v Australian Growth Resources Corporation Pty Ltd (1987) 75 ALR 311. In that case five bankruptcy notices were served on the appellant by the respondent (referred to as the company), each of which was based on a separate certificate of judgment of the Supreme Court of South Australia for costs which the appellant was ordered to pay the company. One of the grounds raised as a basis on which the bankruptcy notices should be set aside was that the orders for costs had been made in favour of receivers and managers who had been appointed to the company before the costs orders were made and not the company. Relevantly, at 319 the Full Court (Morling, Spender and Gummow JJ) said:

We readily understand that it can be said, in a loose sense, that all the orders for costs were made for the benefit of the company. But we do not think that this is a sufficient basis for holding that the orders made in the Supreme Court are a sufficient basis for the issue of the bankruptcy notices, save the order upon which notice No 1169/86 is based. The orders, in terms, require the payment of costs to the receivers and managers. If the debtor, in conformity with s 41(2), had paid the costs to the receivers and managers, he would have complied with the requirements of the bankruptcy notices. The wording of s 41(2)(a)(i) of the Bankruptcy Act is unambiguous. A bankruptcy notice must require the debtor to pay the judgment debt or sum ordered to be paid “in accordance with the judgment or order”. Even if it be accepted that the orders for costs were made for the benefit of the company we do not think it can properly be said that the bankruptcy notices ... required the debtor to pay the costs in accordance with the judgments or orders upon which the notices were based. They were therefore invalid.

55    For those reasons this ground cannot succeed.

Stay of execution; not the judgment creditor; 2017 Judgment in favour of Mr Arnautovic

56    It is convenient to address these grounds together given that they raise similar issues.

57    Save for the reference to the relevant bankruptcy notice in para 28, paras 2, 28, 32 and 34 of each of the Amended Notices of Opposition are in identical terms and provide as follows:

2.    It is a statutory proviso within section 40(1)(g) of the Act as to whether an Act of Bankruptcy has occurred pursuant to the Act:

‘If a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed…’

…

28.    There has been no relevant act of Bankruptcy as [Daniel’s Bankruptcy Notice in the case of Daniel and Michael’s Bankruptcy Notice in the case of Michael] overstated the amount of any debt owing such that is was capable of misleading the debtor, and as such the Bankruptcy Notice was a nullity.

…

32.    There has been no relevant act of Bankruptcy as Mr Arnautovic (and by extension the current purported creditors) was not the “judgment creditor” as required by s 40(1)(g) for each of the judgments contained in the notice, and further execution upon each judgment is not available without leave of the Supreme Court of New South Wales.

…

34.    That the Court go behind the [2017 Judgment] debt (being the judgment entered in the NSWSC on 23 August 2017 in #2017/00237676) on the basis that it is not properly a debt owing to Mr Arnautovic but to Mr Sutherland.

Parties’ submissions

58    Daniel and Michael made submissions in relation to each of these grounds.

59    In relation to the “stay of execution” ground (see paras 2, 28 and 32 of the Amended Notices of Opposition), Daniel and Michael:

(1)    rely on s 41(3)(b) of the Act which they contend gives legislative force to the established principle that a bankruptcy notice cannot validly be issued in relation to a debtor if, at the time of the application for its issue, execution of the judgment to which it relates has been stayed, relying on Lindholdt v Meritt Madden Printing Pty Ltd [2002] FCA 260 (Lindholdt) at [23];

(2)    submit that accordingly a bankruptcy notice cannot be validly issued if there is a stay on execution of the relevant judgment in effect and that such a notice would be a nullity. They contend that, for the purposes of s 41(3)(b) of the Act, “execution is deemed to have been stayed where a judgment creditor is not ‘in a position to issue immediate execution on it’”, relying on Re Solomon; Ex parte Reid (1986) 10 FCR 423 at 425;

(3)    submit that the relevant test is not whether there has been a formal stay order on the judgment but whether the judgment creditor could, in practice, issue immediate execution as at the date of issue of the bankruptcy notice. They contend that a bankruptcy notice, and any creditor’s petition founded on non-compliance with it, can thus be set aside under s 41(3)(b) of the Act where a case can be made out that execution could not be issued on the judgment; and

(4)    say that in the present case each of the judgments relied upon has effectively been stayed pending leave as a result of the change in identity of the liquidator of St Gregory’s as identified in Ghougassian (No 1) at [122] and following.

60    In relation to whether Mr Arnautovic, and by extension the Liquidators, is the proper judgment creditor for the purposes of s 40(1)(g) of the Act (see paras 2 and 32 of the Amended Notices of Opposition), Daniel and Michael:

(1)    submit that Mr Arnautovic, and by extension the Liquidators, was not the “judgment creditor” as required by s 40(1)(g) of the Act for each of the judgments contained in the Bankruptcy Notices. They contend that, even accepting that the judgments were assets of St Gregory’s which vested in the Liquidators upon their appointment (which they do not accept to be the case in relation to the 2013 Judgment and the 2014 Judgment which appear to be in favour of Mr Sutherland personally), further execution upon each judgment is not available without leave of the Supreme Court. They contend that accordingly each judgment has, in effect, been stayed and execution is not available without the grant of such leave;

(2)    submit that before the time for compliance with the Bankruptcy Notices expired, Mr Arnautovic was no longer the liquidator of St Gregory’s so that the 2017 Judgment, even if properly revised by the manager, costs assessment to be a judgment in favour of Mr Arnautovic in his capacity as liquidator, has been effectively stayed pending leave for the same reason;

(3)    contend that, in addition to the requirement for leave, the Liquidators were not the “judgment creditor” in the sense required by s 40(1)(g) of the Act in respect of the 2013 Judgment, 2014 Judgment and 2017 Judgment, being an issue raised in Ghougassian (No 1) commencing at [122]. Daniel and Michael submit that the 2013 Judgment and 2014 Judgment, on the one hand, and the 2017 Judgment, on the other, respectively name Mr Sutherland and Mr Arnautovic as judgment creditor. They contend that relevantly these judgments are not in the name of St Gregory’s or in the name of the Liquidators and, as such, at the very least, there has been a “change in the person entitled or liable to execution under the judgment, whether by assignment, death or otherwise” within r 39.1 of the Uniform Civil Procedural Rules 2005 (NSW) (UCPR);

(4)    observe that r 39.1 contemplates changes in “the persons entitled or liable to execution” brought about “otherwise” than by assignment and refer to Ghougassian (No 1) at [140]-[141]. They submit that the Court would not depart from that view as a matter of comity unless satisfied that Farrell J was plainly wrong in reaching those conclusions. They contend that it follows that certainly in respect of the 2013 Judgment and 2014 Judgment, execution was not available due to the purported change in identity of the judgment creditor; and

(5)    submit that the position in relation to the 2017 Judgment is a little more nuanced because Michael’s Bankruptcy Notice involved judgments from multiple judgment creditors, including judgments in relation to which Mr Arnautovic was not in a position to seek immediate execution. They contend that that is all that is needed to render Michael’s Bankruptcy Notice objectively misleading.

61    In relation to the 2017 Judgment in favour of Mr Arnautovic (see para 34 of the Amended Notices of Opposition), Daniel and Michael:

(1)    observe that the 2017 Judgment was in Mr Arnautovic’s name despite the fact that on 1 September 2016 the Supreme Court issued a statement of reasons and certificate of determination of costs dated 23 August 2016 in which the costs applicant was identified as “Roderick Mackay Sutherland trading at Jirsch Sutherland”. They note that that certificate was entered as a judgment of the Supreme Court in an amount of $326,544.31 on 14 September 2016 and sealed on 28 September 2016 in proceeding 2016/276043 (see [74] below);

(2)    refer to Ghougassian (No 1) at [28]-[30], where Farrell J summarised how the 2017 Judgment came to name Mr Arnautovic as the judgment creditor (see [74] below), and at [146] where her Honour recorded her conclusion in relation to those facts (see [71] below). They submit that her Honour’s reasoning at [146] does not engage with the power of this Court to go behind such judgments, that a judgment or order upon which a bankruptcy notice is based is not conclusive of the existence of a debt and that the power of the Court to go behind a judgment on such an application is now well accepted;

(3)    contend that the issue is whether, accepting a valid judgment existed in favour of Mr Sutherland, the act of reissuing it in favour of Mr Arnautovic if erroneous is otherwise binding on this Court. Daniel and Michael note that a similar issue arose in Broadbent v Medical Board of Australia (2015) 241 FCR 419 (Broadbent), relying in particular on [99]; and

(4)    submit that in this case if the Court is satisfied that the judgment should not have been reissued in a different name by the manager, costs assessment absent an order of the Court reflecting that state of affairs, it follows that the Court should exercise its discretion to go behind the debt. They say that this is important as it would follow that the 2017 Judgment would also require the Liquidators to obtain leave under r 39.1 of the UCPR to be effectively brought by the Liquidators, such leave having not been sought.

62    The Liquidators submit that Daniel and Michael’s reliance on r 39.1 of the UCPR to assert that the Bankruptcy Notices are invalid because the judgments underlying them are stayed, is misplaced. They note that this issue was specifically considered and determined against Daniel and Michael in Ghougassian (No 1). The Liquidators explain that although in Ghougassian (No 1) Farrell J found (at [142]) that the 2013 Judgment and the 2014 Judgment were each stayed, those judgments are only relevant to Michael’s Bankruptcy Notice and the 2017 Judgment was not stayed. The Liquidators submit that the latter is the only judgment relevant to Daniel’s Bankruptcy Notice and that Michael’s Bankruptcy Notice remained validly issued insofar as it relied on the 2017 Judgment.

63    The Liquidators submit that insofar as the 2017 Judgment is concerned, Daniel and Michael have provided no reasons, beyond bald assertion, for their suggestion that the judgment in favour of Mr Arnautovic was erroneous, an assertion which was also raised and dismissed in Ghougassian (No 1) at [146]. They contend that Broadbent provides no support for the contention that the 2017 Judgment was erroneous.

64    The Liquidators submit that, in any event, once an act of bankruptcy has been committed by non-compliance with a bankruptcy notice, the act of bankruptcy is available to found a creditor’s petition issued by any creditor who can establish a debt complying with s 44 and s 52 of the Act, notwithstanding that the judgment that founded the notice may subsequently be set aside. They also contend that a stay of execution of the judgment on which a petitioning creditor’s judgment debt is based does not prevent the debt being “still owing” for the purposes of s 52(1)(c) of the Act.

65    The Liquidators submit that the 2017 Judgment was not stayed at the time the Bankruptcy Notices were issued and, even if it was subsequently stayed, that did not make those notices invalid nor did it prevent the debts from still being owed for the purposes of the creditor’s petitions. The Liquidators also contend that they are creditors in respect of a number of judgments in addition to the 2017 Judgment, including the 2019 Judgment in their names, about which there can be no argument about a stay. The Liquidators accordingly say that this ground does not provide a basis for declining to make a sequestration order.

Consideration

66    Daniel and Michael seek to attack the validity of the Bankruptcy Notices on the basis that the judgments the subject of them are subject to a stay. They say that if that is so then s 41(3) of the Act would prevent the issue of the Bankruptcy Notices. Related to this are the arguments that the Liquidators are not the judgment creditors as required by s 40(1)(g) of the Act for the 2013 Judgment, 2014 Judgment and 2017 Judgment and the issue of whether the 2017 Judgment was erroneously issued in Mr Arnautovic’s name.

67    I turn first to consider whether there was or is a stay of any of the judgments the subject of the Bankruptcy Notices.

68    Daniel and Michael say that the stay arises because of the change in identity of the liquidator of St Gregory’s and because as a result Mr Arnautovic, the liquidator at the time, could not issue immediate execution on the judgments as at the date of issue of the Bankruptcy Notices. The issue of whether the 2017 Judgment was erroneously issued in Mr Arnautovic’s name arises in the context of determining whether that judgment was the subject of a stay.

69    Daniel and Michael rely on r 39.1 of the UCPR which relevantly provides:

(1)    A writ of execution may not be issued in the following circumstances except by leave of the court

(a)    if there has been any change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise,

…

(2)    If leave is required, it may be applied for in the notice of motion for the issue of the writ of execution.

…

(4)    Subrule (1) does not limit the operation of any other Act or law that requires leave for the issue of a writ of execution.

70    The same issue was considered in Ghougassian (No 1) in the context of a contention that Mr Arnautovic was not the judgment creditor as required by s 40(1)(g) of the Act. Her Honour addressed the question of whether there was a stay of the 2013 Judgment and 2014 Judgment (which are only included in Michael’s Bankruptcy Notice) in place at the time of issue of the Bankruptcy Notices commencing at [137]. After setting out r 39.1 of the UCPR her Honour said:

137    This raises the issue of whether the 2013 and 2014 judgment debts answer the description of “a judgment or order the execution of which has not been stayed”, as required by s 40(1)(g) of the Bankruptcy Act, having regard to the fact that Mr Sutherland, not Mr Arnautovic, is named in those orders so that there has been a “change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise” within r 39.1 of the Uniform Civil Procedure Rules.

138    While, as submitted by the respondent, Mr Arnautovic was entitled to stand in the shoes of Mr Sutherland as liquidator of the School at the time the bankruptcy notices were issued having regard to the authority of Re Harris Scarfe Ltd (in liq) at [32], that does not answer the issue raised by r 39.1 of the Uniform Civil Procedure Rules and the decisions in McIntyre v Guy and Rookharp Pty Ltd v Webb.

…

140    While it is true that it is the capacity of liquidator which clothed Mr Sutherland and later Mr Arnautovic with the right to enforce the 2013 and 2014 judgment debts, the Court is not satisfied that the change in the identity of the liquidator does not fall within r 39.1 of the Uniform Civil Procedure Rules. Accordingly Mr Arnautovic was not in a position to issue execution upon those judgments/orders at the time the bankruptcy notices were issued; they were effectively stayed.

141    Albeit that both McIntyre v Guy and Rookharp Pty Ltd v Webb were cases dealing with assignments of debts, the language “any change in the persons entitled or liable to execution under the judgment, whether by assignment, death or otherwise” is very wide and in the Court’s view, wide enough to encompass a change in the identity of the liquidator. The policy purpose for r 39.1 can be inferred: it puts the sheriff and the judgment debtor in a position to know with certainty the entitlement of a person to levy execution where the name of the person on the judgment/order is different from the name of the person seeking to enforce the judgment/order, however that circumstance arises.

142    As there is no evidence that Mr Arnautovic sought leave to execute the 2013 and 2014 judgment debts in lieu of Mr Sutherland, the Court is not satisfied that the judgment/orders giving rise to those debts have not, in effect, been stayed.

71    At [143] Farrell J turned to consider the 2017 Judgment which was in Mr Arnautovic’s name (and which is the only judgment the subject of Daniel’s Bankruptcy Notice and the third judgment included in Michael’s Bankruptcy Notice). In relation to that judgment, at [145]-[146] her Honour said:

145    In their supplementary written submissions filed on 31 July 2019, the Ghougassians relied on the decision in Katter v Melhem [2015] NSWCA 213; 90 NSWLR 64 at [80] per Campbell AJA to submit that the NSWSC did not have jurisdiction to enter the order establishing the 2017 judgment debt on the basis that it was inconsistent with the order previously entered in Mr Sutherland’s favour and there was no evidence of fraud or a statutory power authorising its entry. The Court notes that this submission was made without leave and Katter v Melhem had been decided long before the hearing of the applicants’ applications so that it was open to the Ghougassians to have drawn it to the Court’s attention when it raised the issue of whether Mr Arnautovic was a “judgment creditor” at the hearing and in the submissions filed before the hearing.

146    The submission must be rejected. Whether or not there was error in the decision to reissue the certificate in Mr Arnautovic’s name as liquidator of the School or in the 2017 judgment debt being entered in that form on 23 August 2017, that order is an order for the payment of money made by a superior court of record. An order of a superior court of record, even if made in excess of jurisdiction, is, at worst, voidable, and is valid and binding unless and until it is set aside: see Francis v Eggleston Mitchell Lawyers Pty Ltd at [27] (Rares, Flick and Bromberg JJ) citing Cameron v Cole [1944] HCA 5; 68 CLR 571 at 590 (Rich J with whom Latham CJ agreed at 585, see also McTiernan J at 598, 599 and Williams J at 607); Re Macks; Ex parte Saint [2000] HCA 62; 204 CLR 158 (Gleeson CJ at [20]-[21], Gaudron J at 184 [49], 187 [57], McHugh J at 215-217 [152]-[156], and Gummow at [216]); D.M.W. v C.G.W. [1982] HCA 73; 151 CLR 491 at 507 (Mason, Murphy, Wilson, Brennan and Deane JJ).

72    As noted above, the Bankruptcy Notices are not based on the same judgments. It is convenient to address each in turn.

Daniel’s Bankruptcy Notice

73    Daniel’s Bankruptcy Notice seeks payment of the 2017 Judgment after allowing for one offsetting claim. The 2017 Judgment is in the name of Mr Arnautovic. If the entry of judgment in Mr Arnautovic’s name was “erroneous” as contended by Daniel and Michael then they say that the 2017 Judgment, not being properly in Mr Arnautovic’s name, could not be enforced by him (or the Liquidators) absent a grant of leave under r 39.1 of the UCPR.

74    The facts which led to the issue of the 2017 Judgment, and which I do not understand to be in contention, are set out in Ghougassian (No 1) at [27]-[30]:

27    The respondent filed an application for costs assessment in respect of the Justice Black costs order on 3 May 2016. On 1 September 2016, the NSWSC issued a statement of reasons and certificates of determination dated 23 August 2016 with the “Costs Applicant” being identified as “Roderick Mackay Sutherland trading as Jirsch Sutherland”. The Ghougassians were ordered to pay $6,037.95 for the costs of the determination of the costs assessment and the costs assessment resulted in an amount of $320,506.36 payable by the Ghougassians. Demand for $326,544.31 was made by letter from Hegarty Legal to Mr Balzola on 8 September 2016. The certificates were entered as a judgment of the NSWSC in an amount of $326,544.31 on 14 September 2016 and sealed on 28 September 2016 (case number 2016/276043). No payments were received by the respondent. Mr Arnautovic obtained garnishee orders as a result of which, on 30 November 2016, Westpac Banking Corporation issued a bank cheque in the amount of $5,339.76 to Mr Arnautovic in relation to Dr Ghougassian.

28    On 7 April 2017, the respondent’s solicitors sent an email to the manager of costs assessment at the NSWSC which said:

We act for the Liquidator of St Gregory’s Armenian School Inc (In Liquidation).

I refer to the matter of Roderick MacKay Sutherland trading as Jirsch Sutherland v Michael Ghougassian & Anor (2016/276043) in which we act for the Plaintiff. That proceedings number was allocated to the registration of the certificate of costs in the matter of St Gregory’s Armenian School Inc (In Liquidation) (2013/386207), in which Mr Sutherland (in his capacity as liquidator of St Gregory’s Armenian School (School) was the defendant and Cross-claimant and ultimately became the judgment creditor. A copy of the order is entered in respect of the registration of the certificate of costs is attached for your reference.

It appears that an error has been made on the costs certificate (attached) which has resulted in an error being made in the entering of the judgment registering the cost certificate. The cost certificate should have referred to Roderick MacKay Sutherland in his capacity as Liquidator of St Gregory’s Armenian School Inc (In Liquidation) rather than Roderick Mackay Sutherland trading as Jirsch Sutherland. Whilst it is known to all parties that the judgment was entered in favour of Mr Roderick Mackay Sutherland in his capacity as liquidator of the School, for the avoidance of any doubt we consider that the cost certificate should have been issued to Mr Sutherland specifying his capacity as liquidator.

A second issue which arises is that Mr Sutherland was replaced by Mr Sule Arnautovic as liquidator of the School on 26 February 2016 (also of the firm Jirsch Sutherland) in proceedings before His Honour Justice Black (NSW Proceedings 2016/61814). A copy of the orders made in those proceedings is attached for your ease of reference. Accordingly, Mr Arnautovic assumed all the rights, responsibilities and liabilities that Mr Sutherland had previously held as liquidator of the School, including the right to enforce the judgment debt.

In circumstances where Mr Arnautovic assumes all the rights and obligations previously held by Mr Sutherland as Liquidator, we would be grateful if a correction could be made to the certificate of cost to reflect the current status of the matter, namely that the Judgment Creditor is Sule Arnautovic in his capacity as Liquidator of St Gregory’s Armenian School Inc (In Liquidation).

The Solicitor for the judgment debtors, Mr Robert Balzola, is copied to this email.

Should you require further information please let us know.

29    Initially, Mr Dyson did not accept that any error had been made, noting that the determination of costs made on 23 August 2016 had been in accordance with the information provided by the costs applicant prior to that date. Mr Dyson noted that, according to the email sent by Hegarty Legal on 7 April 2017, Mr Sutherland was not the liquidator of the School but was replaced by Mr Arnautovic on 26 February 2016 in accordance with the copies of the orders provided.

30    Following submissions made by letter dated 10 May 2017 in relation to the power of a costs assessor to vary certificates, on 19 June 2017, Mr Dyson advised Hegarty Legal and Mr Balzola that he had completed his assessment to amend the certificate of determination of costs and had forwarded it to the manager for costs assessment. On 27 July 2017, the NSWSC issued certificates of determination of costs with the costs applicant named as Sule Arnautovic in his capacity as liquidator of the School for an amount of $320,506.36 payable by the Ghougassians. On 4 August 2017, the amended cost certificates were registered as a judgment of the Court and on 23 August 2017 the orders were entered with case number 2017/237676. That judgment/order for $320,506.36 will be referred to as the 2017 judgment debt.

75    In Ghougassian (No 1) at [146] Farrell J held that there was no error in the decision to reissue the certificate of determination of costs in Mr Arnautovic’s name, a finding which was not the subject of an appeal by Daniel and Michael. Before her Honour, Daniel and Michael submitted that the Supreme Court did not have jurisdiction to enter the order establishing the 2017 Judgment because it was inconsistent with the order previously entered in Mr Sutherland’s favour and there was no evidence of fraud or a statutory power authorising its entry.

76    In coming to her conclusion Farrell J relied on the decision in Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 (Francis v Eggleston). In that case an order was made by consent by a Master of the Supreme Court of Victoria assessing the legal costs payable by the appellant to Eggleston Mitchell Lawyers, a firm constituted by a partnership which was later dissolved. Subsequently, the respondent was incorporated and all of the business, work in progress, book debts and liabilities of the former partnership assigned to it. A sequestration order was made against the appellant’s estate. One of the issues raised by the appellant was whether the order of the Master was a final order within the meaning of ss 40(1)(g), 40(3)(d) and 41(3)(a) of the Act and so could found a creditor’s petition.

77    A Full Court of this Court (Rares, Flick and Bromberg JJ) held that it was. At [27]-[28] their Honours said:

27    It is not necessary to examine the source under which the Master’s order was made for the purposes of this appeal. Critically, the Master’s order was an order for the payment of money made by a superior court of record, namely the Supreme Court of Victoria. An order of a superior court of record, even if made in excess of jurisdiction, is, at the worst, voidable, and is valid and binding unless and until it is set aside: Cameron v Cole (1944) 68 CLR 571 at 590 per Rich J with whom Latham CJ agreed at 585, see too at 598, 599 per McTiernan J and 607 per Williams J; Re Macks; Ex parte Saint (2000) 204 CLR 158 at 177 [20]-[21] per Gleeson CJ, 184 [49], 187 [57] per Gaudron J, 215-217 [152]-[156] per McHugh J and 235-236 [216] per Gummow J; see too DMW v CGW (1982) 151 CLR 491 at 507 per Mason, Murphy, Wilson, Brennan and Deane JJ.

28    The Master’s order was an order made for the purpose of resolving a dispute between the parties as to the quantification of the amount owing by Ms Francis on the firm’s contested bill of costs. The Master’s order brought finality to that aspect of the dispute. It required that Ms Francis pay the sum of $11,847.40 to the firm. It was an order of the Supreme Court that was valid and binding. The order was expressed as being made by consent, but it came to be made after a contested hearing before the Master.

78    So too here, as Farrell J found, the order of the Supreme Court which constitutes the 2017 Judgment is valid and binding and no steps have been taken to set it aside. The order was made after a costs assessment process about which Daniel and Michael make no complaint and, I infer, was one in which they participated.

79    However, Daniel and Michael submit that this Court should “go behind the judgment”, noting that her Honour’s reasoning at [146] “does not engage” with the Court’s power to do so. While Daniel and Michael urge the Court to go behind the judgment they do not rely on any evidence or explain by way of submission or otherwise how they say that there is a reason “for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to” Mr Arnautovic such that this Court “can no longer accept the judgment as such satisfactory proof”: see Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132 (Ramsay) at [42] (Kiefel CJ, Keane and Nettle JJ).

80    In Ramsay at [48]-[49] Kiefel CJ, Keane and Nettle JJ said the following in relation to the circumstances in which the Court will go behind a judgment:

48    Wren v Mahony has long been accepted as standing against the proposition advanced by Ramsay. Thus, in Simon v Vincent J O’Gorman Pty Ltd, Lockhart J, with whom Fisher J agreed, said:

“The circumstances in which the court will inquire into the validity of a judgment debt are not closed; but it is clear that the court will not inquire as a matter of course into that question.

Circumstances tending to show fraud, collusion or miscarriage of justice or that a compromise was not a fair and reasonable one are the most frequent examples of the exercise by the court of this jurisdiction.

The courts are reluctant to exercise this jurisdiction where the judgment was entered after a full investigation of the issues at a trial where both parties appeared and had ample opportunity to put their case to the court.”

49    To the same effect are statements by Davies, Lockhart and Neaves JJ in Ahern v Deputy Commissioner of Taxation (Qld), and Sackville, North and Hely JJ in Wenkart v Abignano. As Lockhart J explained in Simon, “fraud, collusion or miscarriage of justice” are the most frequent examples of the exercise of a Bankruptcy Court’s jurisdiction to go behind a judgment; but the overarching obligation imposed by s 52(1) of the Act requires a Bankruptcy Court to be satisfied that there is, in truth and reality, a debt.

(Footnotes omitted.)

81    At [68]-[70] their Honours also relevantly said:

68    For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability.

69    In Petrie v Redmond, Latham CJ, with whom Rich and McTiernan JJ agreed, said that the Bankruptcy Court:

“is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice. ... Also the court looks with suspicion on consent judgments and default judgments. ... The Bankruptcy Court does not examine every judgment debt. Special circumstances must be established before it will do so. It is impossible to lay down any general rule.”

70    The first two sentences of that passage were cited with evident approval by Dixon, Williams, Webb and Kitto JJ in Corney v Brien. The passage was explicitly concerned with consent judgments and default judgments. As a matter of practical experience, these are the sorts of cases in which third parties can be expected to be disadvantaged by the making of a sequestration order based on a judgment which was not the outcome of the rigorous processes of adversarial litigation. The same concern may also arise in a case where the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation that led to the judgment.

(Footnotes omitted.)

82    Daniel and Michael rely on the decision in Broadbent in support of their contention that the 2017 Judgment is erroneous. One of the issues considered in Broadbent was whether the respondent, the Medical Board of Australia, was a creditor of the appellant entitled to issue a bankruptcy notice. The facts of that case are complicated. It is not necessary to set them out in detail save to note that there the costs order, which was the subject of assessment and formed the basis of the judgment on which the bankruptcy notice was issued, was in favour of the Medical Board of Queensland, a predecessor organisation to the respondent.

83    At [50] Rangiah J identified the issue before the Court to be “whether the appellant in truth and reality owes any debt to the Medical Board of Australia. The question is whether the decision made by QCAT that the appellant pay the Medical Board of Queensland’s costs could properly have evolved into the order of the District Court that the appellant pay the assessed costs to the Medical Board of Australia”. His Honour addressed the issue by undertaking a detailed examination of the transitional provisions of the legislation which established the new regulatory authority and the relevant rules of court pursuant to which the judgment based on the costs assessor’s certificate was issued.

84    Having done so, his Honour found (at [89]) that there was no legislative basis for the Deputy Registrar of the District Court of Queensland to appoint a costs assessor under the relevant court rule or to make the order that the appellant pay a sum of money to the Medical Board of Australia. His Honour then said (at [92]-[93]):

92    The order of the District Court of 14 January 2014 was not the result of a contested hearing. Although the appellant did make submissions to the costs assessor, no submissions were made to the Deputy Registrar who made the order. The position is analogous to a default judgment. Where a judgment is obtained by default, a court in bankruptcy will more readily look behind the judgment than if the judgment were obtained following a hearing on the merits: Wolff v Donovan (1991) 29 FCR 480 at 486. There are substantial reasons for questioning whether behind the order of the District Court there is in truth and reality a debt due to the Medical Board of Australia.

93    However, the Medical Board of Australia argues that as the order is an order of an inferior court it remains in force unless and until set aside. It submits that the Court should only go behind the judgment if there is jurisdictional error, and that there is no jurisdictional error in this case, relying upon Craig v South Australia (1995) 184 CLR 163 at 177-178, 179-180. The appellant argues that the question is whether in truth and reality a debt is owed by the appellant to the Medical Board of Australia. It submits that the question of whether the error committed by the Deputy Registrar is jurisdictional or not is irrelevant to that issue.

85    After referring to Corney v Brien (1951) 84 CLR 343, Rangiah J continued (at [96]):

It follows from these passages that the question is whether there was truly a debt owed by the appellant to the Medical Board of Australia before the order of the District Court was made. The Court has no power to set aside the order of another court, but only to prevent the judgment creditor from having recourse to the provisions of the Bankruptcy Act, so that the judgment remains unimpeached and may be enforced by other means: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 587-588, per Morling, Neaves and Spender JJ. It does not matter whether or not the making of the order involved jurisdictional error.

86    His Honour concluded (at [99]) that, in truth and reality, there was no debt owed by the appellant to the Medical Board of Australia antecedent to the order made by the District Court.

87    The position in this case is different.

88    The 2017 Judgment was obtained after a costs assessment was undertaken in relation to the costs incurred in the proceeding before Black J following the making of order 4 (set out at [10] above). No doubt has been cast on the costs assessment process; there is no suggestion that it was tainted in any way or that there was any “fraud, collusion or miscarriage of justice” associated with the certificate of determination of costs which issued from the costs assessor. Nor is it suggested that the certificate was the result of a default or consent judgment. Indeed I would infer the contrary.

89    Daniel and Michael’s complaint is with the assessor’s amendment of the certificate of determination of costs so that it was issued by the Supreme Court in Mr Arnautovic’s name in lieu of that of his predecessor, Mr Sutherland. Once again, there is no basis for concluding that the Court should go behind the amendment made by the costs assessor to the certificate of determination of costs. Daniel and Michael do not provide any evidence to suggest that the amendment was made as a result of fraud or collusion or without proper consideration. Indeed I note, as recorded in Ghougassian (No 1) at [30], it appears that the amendment was made after the costs assessor received submissions.

90    In contrast to the situation before the Court in Broadbent where, it seems, detailed submissions were made about the legislative basis on which it was said that the respondent was not a creditor of the appellant, I have not been taken to any material on which I could reach a similar conclusion. Daniel and Michael simply assert that the 2017 Judgment was erroneously issued in Mr Arnautovic’s name. In any event, this case does not concern a board established by statute but a company in liquidation where the identity of the liquidator changed over time. As Debelle J recognised in Re Harris Scarfe Ltd (in liq) [2006] SASC 277; (2006) 203 FLR 46 (Re Harris Scarfe) at [32]:

… It follows that, in proceedings in which the liquidator is a party, the person holding the office of liquidator is bound by or has the benefit of orders made in those proceedings. So, if the person holding the office of liquidator is replaced by another, the person succeeding that office will be bound by or have the benefit of the orders made before being appointed to that office.

91    For those reasons I am not persuaded that I should go behind the 2017 Judgment or that there is any basis on which it could be said that it was erroneously entered in Mr Arnautovic’s name.

92    Having reached that conclusion, as Farrell J found, for the following reasons the 2017 Judgment was not stayed at the time Daniel’s Bankruptcy Notice was issued.

93    Section 41(3)(b) of the Act gives legislative force to the principle that a bankruptcy notice cannot be validly issued in relation to a debtor if at the time of application for its issue execution of the judgment or order to which it relates has been stayed. If there is a stay of execution of the judgment or order to which the bankruptcy notice relates, the notice is liable to be set aside: see Lindholdt at [23].

94    In CFB18 v Reader Lawyers & Mediators [2018] FCA 611 at [68]-[72] Colvin J said:

68    However, s 41(3) of the Bankruptcy Act provides that if ‘at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed’ then a bankruptcy notice shall not be issued. Also, under s 40(1)(g) there can be no act of bankruptcy arising from a failure to comply with a bankruptcy notice unless it was issued by a creditor who has obtained a judgment or order, ‘execution of which has not been stayed’. The reference to ‘stayed’ in these provisions has been construed as including other circumstances which mean that the judgment or order cannot be enforced: Abigroup Ltd v Abignano [1992] FCA 567; (1992) 39 FCR 74, 80 and Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572, 586. …

69    In this case, the order suspending enforcement was made after the issue of the bankruptcy notice, but was in place by the time I heard the application to extend time and review the decision of the Registrar. The order suspending enforcement was an interim order. If such an order is still in place by the time of any final hearing of the creditor’s petition then that may be a relevant matter at that time. Otherwise, the requirement is only that there be no stay at the time of the application to the Official Receiver for the issue of the bankruptcy notice, or at the latest the time of service: Re Schekeloff; Ex Parte Schekeloff v The Hopkins Group Pty Ltd (1989) 22 FCR 407.

70    In Murdaca v Accounts Control Management Services Pty Ltd [2007] FCA 964, there was no stay at the time of issue of the bankruptcy notice, but an ex parte stay was granted within the 21 day period for compliance. Branson J granted a stay in respect of proceedings under a sequestration order pending an application to the High Court for special leave to appeal on the basis that the correctness of the decision in Re Schekeloff is open to question. Her Honour found it to be at least arguable that a debtor does not commit an act of bankruptcy by not complying with a demand to pay a judgment debt which becomes unenforceable during the period allowed for compliance even though the debt had been due and payable at the dates of issue and service of the bankruptcy notice: at [15]. The matter does not appear to have proceeded to any further determination.

71    In my view, the reasoning and decision in Re Schekeloff is correct. It reflects the language in s 41(3)(b) which states the circumstances in which a bankruptcy notice may be issued. It is implicit in the terms of s 41 (particularly s 41(6A)) that the Court has a broad power to set aside a bankruptcy notice. The Bankruptcy Act does not circumscribe the extent of the circumstances in which that inherent power may be exercised. There may be instances where the fact that a stay has been granted after the issue of the notice but during the period for compliance forms part of the circumstances upon which the Court relies in setting aside a notice. For example, it may be part of the basis for a conclusion that the notice should be set aside as an abuse of process, particularly where the prospect of an application for a stay had been foreshadowed or otherwise was in view: see the circumstances in Lindholdt v Merritt Madden Printing Pty Ltd [2002] FCA 260. However, that is very different to concluding that the notice itself is invalid or there can be no act of bankruptcy in failing to comply with a notice where there has been a stay granted after the issue of the notice. There is no language to support those conclusions in the provision.

72    Further, if the contrary view were adopted then a person receiving a bankruptcy notice could immediately seek an interim stay on an ex parte basis and that would mean there could be no act of bankruptcy arising in respect of a failure to comply with the notice. The stay may then not be extended, but the creditor would have to issue a further notice.

(Emphasis added.)

95    Daniel’s Bankruptcy Notice was issued on 25 August 2017. There was no stay of the 2017 Judgment as at that date. Mr Arnautovic could issue immediate execution on it without taking any further steps.

96    That the Liquidators have now replaced Mr Arnautovic as liquidator of St Gregory’s does not affect the conclusion I have reached in relation to the question of whether there was a stay of the 2017 Judgment as at the date of issue of Daniel’s Bankruptcy Notice. However, even if the appointment of the Liquidators resulted in a stay of the 2017 Judgment, that would not invalidate Daniel’s Bankruptcy Notice. That is because a stay of execution of the judgment on which a petitioning creditor’s judgment debt is based does not prevent the debt being still owing for the purposes of s 52(1)(c) of the Act: see Sharpe v CNH Capital Australia Pty Limited [2018] FCA 49 at [22]-[27]. In any event, as the Liquidators submit, they are creditors in respect of judgments in addition to the 2017 Judgment, including the 2019 Judgment. No argument is or can be made that the 2019 Judgment is subject to a stay.

Michael’s Bankruptcy Notice

97    Michael’s Bankruptcy Notice seeks payment of the 2013 Judgment, the 2014 Judgment and the 2017 Judgment after allowing for various offsetting claims.

98    It is not in dispute that the 2013 Judgment and the 2014 Judgment were stayed at the time of the issue of Michael’s Bankruptcy Notice as was found to be the case in Ghougassian (No 1) at [140]-[142] because of the operation of r 39.1 of the UCPR. Absent a grant of leave under r 39.1 of the UCPR, Mr Arnautovic, the liquidator of St Gregory’s at the time, was not in a position to issue immediate execution upon the judgment: see McIntyre v Gye (1994) 51 FCR 472 at 477.

99    That leaves the 2017 Judgment which was also included in Michael’s Bankruptcy Notice. For the reasons set out at [74]-[95] above, that judgment was not erroneously entered in Mr Arnautovic’s name or stayed as at the date of issue of Michael’s Bankruptcy Notice, 28 August 2017. Similarly, for the reasons set out at [96] above, that the Liquidators have now replaced Mr Arnautovic as liquidator of St Gregory’s does not prevent them from proceeding with the creditor’s petition issued to Michael. The contention that because of the inclusion of the 2013 Judgment and the 2014 Judgment in Michael’s Bankruptcy Notice it is misleading is addressed at [110]-[115] below.

100    It follows that these grounds are not made out.

The Bankruptcy Notices overstate the amount of any debt owing

101    By para 28 of the Amended Notices of Opposition, Daniel and Michael each allege that there was no relevant act of bankruptcy as each of the Bankruptcy Notices overstated the amount of any debt owing such that it was capable of misleading the debtor and was therefore a nullity.

102    Notwithstanding that this ground is raised by both Daniel and Michael, it can only be relied by Michael. That is because Michael’s Bankruptcy Notice is based on three judgments including the 2013 Judgment and the 2014 Judgment.

103    The following submissions are made in relation to Michael’s Bankruptcy Notice:

(1)    the 2013 Judgment was in favour of Mr Sutherland and was not a debt due and owing to Mr Arnautovic as it was not entered in his name or, in the alternative, it was stayed due to non-compliance with r 39.1 of the UCPR;

(2)    similarly, the 2014 Judgment in favour of Mr Sutherland was not a debt due and owing to Mr Arnautovic as it was not in his name or, in the alternative, it was stayed due to non-compliance with r 39.1 of the UCPR; and

(3)    for the reasons set out at [61] above, the 2017 Judgment was not a debt owed to Mr Arnautovic but to Mr Sutherland.

104    The question of whether the 2017 Judgment was properly issued in Mr Arnautovic’s name is addressed at [99] above and can be put to one side. The remaining issue to determine is whether Michael’s Bankruptcy Notice is overstated because it includes the 2013 Judgment and the 2014 Judgment which, at the time of the issue of Michael’s Bankruptcy Notice, had been stayed. That is, Mr Arnautovic could not issue immediate execution on the 2013 Judgment or the 2014 Judgment by reason of r 39.01 of the UCPR.

105    Section 41(5) of the Act provides that a bankruptcy notice is not invalidated by reason only that the sum specified in it as the amount due to the creditor exceeds the amount in fact due unless the debtor, within the time fixed for compliance with the notice, gives notice to the creditor that he or she disputes the validity of the notice on the ground of misstatement.

106    In Re Walsh (1982) 47 ALR 751 at 755 Lockhart J said the following in relation to s 41(5) and (6) of the Act:

These sub-sections are taken from s 53 of the Bankruptcy Act 1924 which in turn was reproduced from the English Bankruptcy Act of 1914 and its predecessor the Bankruptcy and Deeds of Arrangement Act 1913. It has been said that these provisions were enacted to overcome the judgment in Re a Debtor (No 478 of 1908), supra. Plainly enough, as long ago as 1913, the predecessors of sub-ss (5) and (6) of s 41 were intended to ensure that, when courts would otherwise hold bankruptcy notices invalid on the ground of overstatement of the amount due, the consequence of invalidity was not to follow unless the debtor gave the requisite notice under s 41(5) or its then equivalent.

They are ameliorating provisions. They do not either in terms or in substance themselves invalidate anything. They save some bankruptcy notices from what otherwise would be invalidity, but the subsections are not based on an assumption that overstatement necessarily leads in every case to invalidity of the bankruptcy notice. …

107    It is not in dispute that Michael did not give notice pursuant to s 41(5) of the Act. That fact was also referred to in Ghougassian (No 1) at [147] where Farrell J said:

Mr Ghougassian has not claimed that the bankruptcy notice overstates the amount owing to the respondent in any way that engages s 41(5) of the Bankruptcy Act. Accordingly, his bankruptcy notice remain [sic] validly issued insofar as it relies on the 2017 judgment debt.

108    However, Michael submits that, giving s 41(5) its proper meaning, overstatement of the debt in conjunction with other issues may give rise to a bankruptcy notice being a nullity. Michael contends that the inclusion of the 2013 Judgment and the 2014 Judgment in Michael’s Bankruptcy Notice was not just an overstatement but was an erroneous inclusion of two judgments which simply should not have been included in Michael’s Bankruptcy Notice.

109    In my view, in the absence of having given notice under s 41(5) of the Act, it is not open now for Michael to contend that the bankruptcy notice served on him, which includes the 2013 Judgment and the 2014 Judgment, is invalid because it misstates the amount due. Michael submits that a misstatement is in the nature of, for example, an incorrect interest calculation or something of a more minor nature. There is no basis on which it is open to conclude that s 41(5) of the Act should be interpreted in that way. While of a greater magnitude, the erroneous inclusion of the 2013 Judgment and the 2014 Judgment is an overstatement of the amount due in relation to which it was open to give notice pursuant to s 41(5) of the Act. That did not occur.

110    Michael says that the inclusion of the 2013 Judgment and the 2014 Judgment was something other than a misstatement of the amount due. As I understand Michael’s submission, he contends either that there was a defect in the bankruptcy notice by reason of the inclusion of those judgments or that their inclusion rendered the Bankruptcy Notice misleading, in either case rendering the bankruptcy notice a nullity.

111    The Liquidators submit that if the inclusion of the 2013 Judgment and the 2014 Judgment is a defect in Michael’s Bankruptcy Notice, then it is a formal defect or irregularity by reason of s 306 of the Act which would not invalidate the notice.

112    Section 306 of the Act relevantly provides:

(1)    Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.

113    In Re Wimborne; Ex parte the Debtor (1979) 24 ALR 494 (Re Wimborne) Lockhart J considered whether, on the assumption that the description of the relevant final order included in the bankruptcy notice in issue as an order of the High Court was mistaken, the bankruptcy notice was thereby invalidated or saved by s 306 of the Act. His Honour had come to the conclusion that the assumption was not made out but considered the issue in any event as it was fully argued before him. At 498-499, after setting out s 306(1) of the Act, Lockhart J said:

A “formal defect or any irregularity” is one that could not reasonably mislead the debtor. If the defect is of such a kind as could reasonably mislead the debtor upon whom it was served the defect is fatal to the notice: see Re a Debtor; Ex parte The Debtor v Bowmaker Ltd [1951] Ch 313 and Pillai v Comptroller of Income Tax [1970] AC 1124 at 1135.

The test is not whether the debtor was in fact misled. It is sufficient that he could be misled. In James v FC of T, supra, Williams, Kitto and Taylor JJ said (93 CLR at 644): “The court cannot inquire whether the debtor has in fact been misled or not. In this case it is probable that he was not misled. It is sufficient that he could be misled.”

In Re a Judgment Debtor [1908] 2 KB 474 , Kennedy LJ said at 481: “In the first place one has not to determine the validity or invalidity of the notice by considering whether the debtor to whom the notice is given has in fact been misled. It is sufficient that there is good ground for saying that the debtor might be misled. That is, I think, settled by authority. Secondly, in judging of the probability of the debtor being misled one is bound not to deal too liberally with the requisites of the notice because of the quasi penal consequences which a bankruptcy involves.”

It is well established that to determine whether the debtor served with the bankruptcy notice could be misled the court may look at facts extraneous to the notice itself.

114    The inquiry to be made is whether the inclusion of the 2013 Judgment and the 2014 Judgment in Michael’s Bankruptcy Notice could reasonably mislead him. The test is whether he could be misled. In answering that question I can have regard to facts extraneous to Michael’s Bankruptcy Notice. Having regard to the history of the dealings between Michael and the various liquidators of St Gregory’s over a lengthy period of time, summarised at [5]-[26] above, in my opinion, the inclusion of those judgments could not reasonably have misled him. Those dealings include the various proceedings which resulted in the 2013 Judgment, 2014 Judgment and 2017 Judgment and the course of the proceeding which led to the decision in Ghougassian (No 1). Those dealings are:

(1)    Michael’s unsuccessful application to have Mr Sutherland who was first appointed as liquidator to St Gregory’s replaced as liquidator which resulted in the 2013 Judgment and the 2014 Judgment;

(2)    Michael and Daniel’s challenges to the rejection of their respective proofs of debt which led to the 2017 Judgment; and

(3)    Michael and Daniel’s application to this Court to have the Bankruptcy Notices set aside. The issue of whether each of the 2013 Judgment and the 2014 Judgment was stayed arose in the course of that proceeding.

115    This ground is not made out.

Multiple judgment creditors in Michael’s Bankruptcy Notice

116    This ground only arises in relation to Michael’s Bankruptcy Notice which relies on three judgments: the 2013 Judgment, the 2014 Judgment and the 2017 Judgment. Michael contends at para 33 of his Amended Notice of Opposition that there has been no relevant act of bankruptcy as the bankruptcy notice served on him purported to seek payment in relation to multiple debts owing to different creditors, contrary to the requirements of s 40(1)(g) and s 41 of the Act, and therefore it was a nullity.

Parties’ submissions

117    Michael submits that a bankruptcy notice cannot be issued in relation to judgments owed to multiple creditors, s 41(1) of the Act permits only a single creditor to issue a bankruptcy notice based on two separate judgments and a bankruptcy notice cannot be issued by two creditors, who are not joint creditors, in respect of two different judgments for different amounts against the same debtor, relying on DJ Sweeney Holdings Pty Ltd v McLeod [2011] FMCA 608; (2011) 253 FLR 1 at [10]-[15].

118    Michael contends that the 2013 Judgment, 2014 Judgment and 2017 Judgment were not in favour of the same creditor but, in the case of the first two judgments, in the name of Mr Sutherland with no reference to his capacity as a liquidator and, in the case of the third judgment, in the name of Mr Arnautovic. He says that this is contrary to Nortex at [34].

119    Michael submits that where a person entitled to enforce a judgment is not the person who actually obtained it, he cannot issue execution and accordingly cannot issue a bankruptcy notice without leave of the Court because there has been a change of parties. He says therefore that where the executor of a creditor has not obtained leave to issue execution on a judgment obtained by the testator he cannot serve a bankruptcy notice on the debtor, citing Re Woodall; Ex parte Woodall (1884) 13 QBD 479. Michael contends that, in other words, a sum that is not due under a judgment cannot be joined in a bankruptcy notice with one that is. He submits that as such, Michael’s Bankruptcy Notice does not comply with the requirements of the Act, is apt to mislead the debtor and is a nullity.

120    The Liquidators submit that this ground, which is related to the ground relied on by Michael concerning alleged overstatement of any amount owing (see [101]-[115] above), was addressed in Ghougassian (No 1) at [132]-[133]. The Liquidators submit, having regard to the findings in Ghougassian (No 1) and relying on s 40(3)(d) of the Act, that although the 2013 Judgment and the 2014 Judgment were not in Mr Arnautovic’s name, there were not “multiple creditors”.

121    The Liquidators contend that Michael’s Bankruptcy Notice is not a nullity given that Michael could not have been misled as to the basis of Mr Arnautovic’s entitlement to be paid in relation to the 2013 Judgment and the 2014 Judgment and given the explanation in Ghougassian (No 1) at [147] of what was owing pursuant to the bankruptcy notice.

Consideration

122    The 2013 Judgment and the 2014 Judgment were each issued in Mr Sutherland’s name. Those judgments arose out of the costs order made in favour of Mr Sutherland following Michael’s unsuccessful application to have him removed as liquidator of St Gregory’s. The 2017 Judgment is in Mr Arnautovic’s name.

123    Daniel and Michael rely on Nortex at [34] where Dowsett J, in considering whether two or more judgment creditors having judgment debts owed to them severally may unite in the issue and service of a single bankruptcy notice, said:

Whatever one may think of the third ground relied upon in the reasoning in Low, namely that a judgment debtor was entitled to pay out one of two or more judgment debts, the other grounds still have merit. Sections 40(1)(g) and 41 still speak of “a creditor”. Section 44 still expressly provides for the presentation of a petition by two or more creditors. Parliament appears to have identified the need to legislate to allow for a bankruptcy notice based on two or more judgment debts. Had it also intended to allow two or more judgment creditors to join in obtaining and serving a bankruptcy notice for debts owed to them severally, one would have expected it to say so. The explanatory memorandum which accompanied the Bankruptcy Legislation Amendment Bill 2002 (Cth) suggests that Parliament had no such intention. At paragraph 4(j) the Memorandum states that the proposed amendment would:

… allow the amounts of final judgments or final orders obtained by a creditor to be amalgamated for the purpose of meeting the $2,000 threshold for the issue of a bankruptcy notice … .

124    However, that issue does not arise here. There were not multiple creditors seeking to claim payment of amounts owed to them severally in one bankruptcy notice. One creditor was named in Michael’s Bankruptcy Notice, Mr Arnautovic who at the time was the liquidator of St Gregory’s. As submitted by the Liquidators, he was the only creditor because:

(1)    as Farrell J said (at [133]) in rejecting a submission that the 2013 Judgment and the 2014 Judgment were each in favour of Mr Sutherland in his own name and not that of “his alleged successors in title”:

… Given the nature of the proceedings, it cannot seriously be disputed that Mr Sutherland was a party to those proceedings in his capacity as liquidator of the School.

(2)    as set out at [90] above, if the person holding office as liquidator is replaced by another, the person succeeding that office will be bound by and have the benefit of orders made before being appointed to that office (see Re Harris Scarfe at [32]); and

(3)    pursuant to s 40(3)(d) of the Act, a person who is for the time being entitled to enforce a final judgment or final order for the payment of money shall be deemed to be a creditor who has obtained a final judgment or final order. At the time of the issue of Michael’s Bankruptcy Notice, Mr Arnautovic was so entitled (subject to the operation of r 39.1 of the UCPR).

125    In any event, Michael’s Bankruptcy Notice is not one that is apt to mislead and is therefore a nullity. Michael could not have been misled as to the basis of Mr Arnautovic’s entitlement to be paid the amounts the subject of the 2013 Judgment and the 2014 Judgment given that he had commenced the proceeding against Mr Sutherland seeking to remove him as a liquidator. It was a costs order made in that proceeding which resulted in the 2013 Judgment and the 2014 Judgment. Daniel and Michael were served with a copy of the orders appointing Mr Arnautovic as liquidator upon Mr Sutherland’s retirement from that office together with the Bankruptcy Notices.

The creditor’s address

126    At para 29 of their Amended Notices of Opposition Daniel and Michael each contend that they have not committed an act of bankruptcy because the Bankruptcy Notices failed to provide an address at which the creditor could be reached for the purposes of paying, securing or compounding the debt and therefore the Bankruptcy Notices were each a nullity.

Parties’ submissions

127    Daniel and Michael submit that there is established authority that a bankruptcy notice must contain an address of the creditor “at which, during the currency of the notice, the creditor can be paid or where an agreement can be made with him or on his behalf to secure or compound the debt”, relying on Nugent v Brialkim Pty Ltd (1985) 61 ALR 725 (Nugent) at 726 and following.

128    They contend that the address of the former liquidator, Mr Arnautovic, as the address for payment in the Bankruptcy Notices was a defect of the type identified in Re Wimborne because:

(1)    the effect of the orders made in Ghougassian (No 1) was to extend the time for compliance by Daniel and Michael with each of the Bankruptcy Notices until 30 September 2019;

(2)    as at September 2019 Mr Arnautovic was no longer the liquidator of St Gregory’s; and

(3)    there was therefore a mis-description of the creditor and an incorrect address provided as the address for payment.

129    Daniel and Michael contend that it follows that for the “currency” of the Bankruptcy Notices, specifically the period between 23 and 30 September 2019, there were material mis-descriptions in them, they were apt to mislead the debtors and, had the hypothetical debtor sought to comply with the Bankruptcy Notices, he would not have found the liquidator, or any agent of the liquidator, at the address provided in them. They submit that, in the circumstances, the Bankruptcy Notices ceased to be valid, were apt to mislead them and cannot found an act of bankruptcy.

130    The Liquidators submit that, although they are the petitioning creditors, the relevant creditor for the purpose of the Bankruptcy Notices was Mr Arnautovic who was the named judgment creditor for the 2017 Judgment, the relevant judgment for the purposes of compliance with those notices following the decision in Ghougassian (No 1).

131    The Liquidators submit that the fact that Mr Arnautovic was no longer the liquidator of St Gregory’s at the time an order was made extending the time for compliance with the Bankruptcy Notices does not lead to the conclusion that his address was no longer valid or that the Bankruptcy Notices were invalid. The Liquidators submit that Daniel and Michael’s submission that during the “currency” of the Bankruptcy Notices, in particular between 23 and 30 September 2019, there were material mis-descriptions in them based on the address should be rejected, noting that the circumstances in this case are analogous to those in Francis v Eggleston. They contend that is so because throughout the currency of the Bankruptcy Notices the judgment creditor named in the 2017 Judgment continued to be Mr Arnautovic whose address was correctly stated in them and, accordingly, if Daniel and Michael had complied with the Bankruptcy Notices by paying Mr Arnautovic that would have been a good discharge of the debt.

132    The Liquidators contend that, as a former liquidator and officer of the Court, Mr Arnautovic had an obligation to account for any monies he received in satisfaction of the 2017 Judgment to them. They say that this was a matter between Mr Arnautovic and them and did not prevent Mr Arnautovic from giving a good discharge of the debt. The Liquidators contend that, in that sense, the inclusion of Mr Arnautovic’s address on the Bankruptcy Notices was analogous to having the address of a solicitor agent, which is clearly a valid address.

133    The Liquidators submit that Daniel and Michael’s submission that the Bankruptcy Notices contain material mis-descriptions and were apt to mislead should also be rejected. They say that is so because at all times the Bankruptcy Notices correctly described Mr Arnautovic as the judgment creditor and correctly identified his address, and Mr Arnautovic’s address could not mislead Daniel and Michael in circumstances where his resignation and replacement by the Liquidators was an issue in Ghougassian (No 1) about which Farrell J requested submissions.

Consideration

134    In addressing this ground it is convenient first to set out the relevant facts:

(1)    on 25 and 28 August 2017 respectively Daniel’s Bankruptcy Notice and Michael’s Bankruptcy Notice were issued. Those notices were subsequently served on each of Daniel and Michael. There is no issue about their service;

(2)    at the time of the issue of the Bankruptcy Notices, Mr Arnautovic was the liquidator of St Gregory’s. The Bankruptcy Notices each provided that payment of the debt could be made to Mr Arnautovic in his capacity as liquidator of St Gregory’s at his business address (see [15] above);

(3)    on 24 September 2017 Daniel and Michael each commenced a proceeding in this Court seeking orders to set aside, in the case of Daniel, Daniel’s Bankruptcy Notice and, in the case of Michael, Michael’s Bankruptcy Notice (Bankruptcy Notice Proceedings);

(4)    on 11 January 2019 the Liquidators replaced Mr Arnautovic as liquidators of St Gregory’s. In Ghougassian (No 1) at [113] Farrell J notes that “given the nature of some of the claims and issues identified by the Court” her Honour sought submissions in relation to, among other things, events since the hearing and whether the Liquidators wished to be joined as parties, noting that they did not;

(5)    on 23 September 2019 an order was made pursuant to s 41(6A) of the Act that the time for compliance, in the case of Daniel, with the requirements of Daniel’s Bankruptcy Notice and, in the case of Michael, with the requirements of Michael’s Bankruptcy Notice be extended up to and including 30 September 2019;

(6)    Peter Justin Hegarty of Hegarty Legal, the solicitors for the Liquidators, gave evidence that:

(a)    he previously acted for the former liquidators of St Gregory’s, Mr Sutherland and then Mr Arnautovic;

(b)    he acted for Mr Arnautovic in the Bankruptcy Notice Proceedings;

(c)    following the replacement of Mr Arnautovic as liquidator and the appointment of the Liquidators as liquidators of St Gregory’s he continued to act in the Bankruptcy Notice Proceedings; and

(d)    although at that time he received instructions from the Liquidators, he continued to act for Mr Arnautovic with the authority of the Liquidators and Mr Arnautovic remained the respondent in the Bankruptcy Notice Proceedings and the subject of a potential adverse costs order in the event that Daniel and Michael were successful;

(7)    on 28 February 2019 Hegarty Legal sent a letter to Robert Balzola & Associates, the solicitors for Daniel and Michael, relevantly informing them that:

As you are aware, Mr John Mcinerney and Mr Philip Campbell-Wilson of Grant Thornton were appointed as the replacement liquidators of the School by order of the Supreme Court of NSW on 14 January 2019. We confirm that we continue to act for the replacement liquidators in respect of the liquidation.

Notwithstanding that the appointment of our clients is a matter of public record, we enclose a copy of the relevant orders for your clients' information and records.

(8)    between early February 2019 and 1 May 2019 Mr Balzola and Hegarty Legal exchanged without prejudice correspondence in an attempt to resolve all outstanding matters; and

(9)    on 27 September 2019 Mr Hegarty sent an email to Mr Balzola attaching a copy of the 2019 Judgment. Mr Hegarty informed Mr Balzola that payment of the 2019 Judgment could be made into the account specified in his email, referred to the Bankruptcy Notice Proceedings and relevantly said:

As a separate made [sic] we note the extension of the Bankruptcy Notices as ordered by Farrell J of the Federal Court on Monday, 23 September 2019 expire this coming 30 September 2019.

We are instructed that the amounts referrable to the Bankruptcy Notices issued to your clients may also be made to the above mentioned bank account.

135    Mr Arnautovic also gave evidence. He said that at all times since the date of issue of the Bankruptcy Notices his work address has remained the same and it is the address included in the Bankruptcy Notices for payment of the debt claimed. Mr Arnautovic said that during the currency of the Bankruptcy Notices he did not receive any payment of the debts claimed in them nor was he otherwise contacted directly by Daniel or Michael at his work address concerning payment of those amounts or in relation to Bankruptcy Notices.

136    If Mr Arnautovic had received payment of the debts claimed in the Bankruptcy Notices, he would have forwarded those funds to the Liquidators pursuant to his ongoing obligation to account for the money he receives in his capacity as the former liquidator of St Gregory’s and pursuant to the undertaking he gave to the Supreme Court. In relation to the latter, Mr Arnautovic notes that he undertook that he would “provide whatever assistance is necessary for [the Liquidators] including with respect to the transfer of files at no addition [sic] cost to the liquidation”, an undertaking which was acknowledged in In the matter of St Gregory’s Armenian School Inc (in liquidation) (Supreme Court of New South Wales, 2019/12805, 12 February 2019) at [20]-[21] where Robb J relevantly said:

20    Although the voluntary replacement of Mr Arnautovic by liquidators who are external to the Firm could potentially increase the costs of the liquidation, Mr Arnautovic has explained that the remaining work is relatively straightforward. It involves having a costs order in favour of the liquidator assessed, seeking to recover costs, and seeking to distribute surplus proceeds in the liquidation. The incoming liquidators’ use of Mr Arnautovic’s existing solicitor will be cost-effective and ensure continuity of knowledge concerning the steps to be undertaken. Mr McInerney has confirmed that the new liquidator will continue to instruct that solicitor.

21    Further, Mr Arnautovic has agreed to provide whatever assistance is necessary to the replacement liquidators at no additional cost to the liquidation.

137    Mr Arnautovic’s evidence is that, consistent with his ongoing obligations as the former liquidator of St Gregory’s, on 18 January 2019 he transferred all monies in the liquidation account to the Liquidators and that, similarly, were he to receive a cheque in his favour as judgment creditor and former liquidator he would have forwarded those funds to the Liquidators.

138    Next, it is convenient to turn to the authorities.

139    In Nugent the relevant bankruptcy notice provided that the respondents had “their registered office at c/o Messrs. Lyons, Dunlop and Pratt, 8th level, MLC Centre, Cnr. George & Adelaide Streets, Brisbane in the state of Queensland”. The issue before a Full Court of this Court (Northrop, Lockhart and Beaumont JJ) was whether the bankruptcy notice failed to give an address at which there was a person or persons present with the authority of the respondents to receive payment or to secure or compound the debt. Commencing at 726 Lockhart J (with whom Northrop and Beaumont JJ agreed) said in relation to that issue:

Neither the Bankruptcy Act 1966 itself nor the Bankruptcy Rules contain any provision requiring the address of the creditor to be stated in the bankruptcy notice. That requirement is contained in Form No 4 in Sch 1 to the Bankruptcy Rules, and is not in terms a requirement that it state the judgment creditor's address at which payment may be made by the debtor or where he may secure or compound. It simply provides, in what is for convenience sometimes called the recital to the bankruptcy notice, for the insertion of the name and address of the judgment creditor. However, the prescribed form does make provision in the operative part of the notice for the debtor to pay the amount claimed by the judgment creditor to the judgment creditor, or, if the judgment or order requires payment to be made to a court or a person other than the judgment creditor, the name and address of the court or the other person to whom payment is required to be made.

Judgments of long standing have held in relation to comparable provisions in the bankruptcy legislation of England and the Australian Bankruptcy Act 1924 that a judgment creditor must give an address or addresses where he, or, if more than one, they, or one of them, or some agent authorized on his or their behalf, may be found: see Re Beauchamp; Ex parte Beauchamp [1904] 1 KB 572 and James v FC of T (1955) 93 CLR 631 at 639. The question before this court must be considered in the light of the following passage from James’ case (at p 639): “It is the duty of a debtor to seek out the judgment creditor and pay the judgment debt to the creditor if he is in Australia The debtor has the correlative right to pay the creditor wherever he can find him so that a debtor could be seriously prejudiced if he was led to believe that he was bound to pay the creditor at one particular place.”

As I perceive it, the rationale of these and other decisions is that the address of the creditor must be stated in order to comply with the prescribed form of notice and because non-compliance with the requirements of a bankruptcy notice constitutes an act of bankruptcy and may have quasi-penal consequences.

It is not sufficient that a creditor merely give an address where he is known. It must be an address at which he can be paid or where an agreement may be made with him or on his behalf to secure or compound it. If the creditor gives his home as his address he is not bound to remain there all day and night during the currency of the notice. Obviously that would be absurd. Similarly, if he gives his business address he is not bound to remain there always, or even throughout the whole of normal business hours (whatever that expression may mean these days) during the currency of the notice.

However, I agree with the primary judge that, where the creditor is a company, it is desirable that there be someone present at the address given in the notice during ordinary business hours with authority to receive payment immediately and without having to get in touch with the Board or any other person capable of conferring authority. I would add that it is desirable, though not essential, that such a person also have authority to secure or compound the debt if that is the wish of the creditor and he does not merely insist, as he may if he wishes, upon payment of the debt in full.

In my opinion, the address stated must be one at which the debtor may, during the currency of the notice, make payment of the amount claimed in the notice, or one where he may make arrangements to secure or compound the debt. It may be that in certain circumstances, although he may make arrangements to secure or compound by calling at the address stated in the notice, he will do so by speaking to persons who are themselves not physically at that address, but are, for example, available on the telephone. The examples of the possibilities are manifold and need no elaboration.

The test must satisfy the demands of common sense in the highly ordered and busy world in which we live, tempered by a consideration of the implications of a bankruptcy notice and the serious consequences that can flow from non-compliance with its requirements. I respectfully agree with the primary judge that the basic principle is that the address given should be one at which during the relevant period it is reasonably practicable for the debtor to make payment or to offer to secure or compound.

140    In Bonds Industries Ltd v Sing [1999] FCA 1055 (Bonds Industries) Emmett J considered whether the inclusion of an incorrect address of the Registry of this Court in the relevant bankruptcy notice was a defect that was fatal or whether it could be ignored because of the operation of s 306 of the Act. Justice Emmett articulated the question for the Court to be “whether the statement of an address [of] the Registry of the Court which is wrong at the time of service of the notice, is a formal defect or an irregularity, so as to attract the operation of section 306”. Relevantly at [12]-[13] his Honour said:

12    A bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice - see Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 79. There is no requirement of the Act which states that the address of the Federal Court must be stated in a bankruptcy notice.

13    The position may be different in relation to the address at which a debtor may make the payment demanded under the bankruptcy notice. A judgment creditor in a bankruptcy notice must give an address or addresses where he may be found. The address stated must be one at which the debtor may, during the currency of the notice, make payment of the amount claimed in the notice or, one where he may make arrangements to secure or compound the debt. The test for adequacy of such an address must satisfy the demands of common sense in the highly ordered and busy world in which we live, tempered by a consideration of the implications of a bankruptcy notice and the serious consequences that can flow from non-compliance with its requirements. The address given should be one at which, during the relevant period, it is reasonably practicable for the debtor to make payment or to offer to secure or compound - per Lockhart J in Nugent v Brialkim Pty Limited (1985) 61 ALR 725 at 726 and 727.

141    Daniel and Michael rely on the decision in Metledge v Hopkins [2020] FCA 561 (Metledge) in which Lee J found that the relevant bankruptcy notice, the non-compliance with which was relied upon as an act of bankruptcy for the purposes of a creditor’s petition subsequently served on the debtor, was invalid. Accordingly, the creditor’s petition was dismissed. The bankruptcy notice in question recorded the creditor’s address, including in that part of the notice dealing with how payment is to be made, as “P.O. Box 226, Strathfield, Sydney (sic), NSW 2135”.

142    At [7]-[8] Lee J said:

7    An essential aspect of a bankruptcy notice is to make it clear what a debtor must do in order to comply, and to explain what is necessary to be done to ensure an act of bankruptcy is not committed by reason of non-compliance (including where payment can be made). In Re St Leon; Ex parte National Australia Bank Limited (1994) 54 FCR 371, Lindgren J held that the statement of address in a bankruptcy notice is a matter that is made essential under the Bankruptcy Act 1966 (Cth) (Act) and noted at 378:

… Kleinwort Benson distinguish[es] between that which the Act requires on the one hand, and the way in which a particular bankruptcy notice is “filled in” on the other hand. The distinction may not always be clear, but I regard a total failure to state an address for the judgment creditor as a non-compliance with s 41(1)(a), as distinct, for example, from an ambiguous or unclear statement of an address. The latter would be an instance of a notice in accordance with the prescribed form which could nonetheless reasonably mislead the debtor.

(emphasis added).

8    The reference of Lindgren J to an instance which could “reasonably mislead the debtor”, was a reference to the judgment of Lockhart J in Re Wimborne; Ex parte The Debtor (1979) 24 ALR 494 at 498–9, where it was explained that a “formal defect or any irregularity” is one that could not “reasonably mislead the debtor”. And it was further explained by Lockhart J that “if the defect is of such a kind as could reasonably mislead the debtor upon whom it was served” then the defect “is fatal to the notice”. Accordingly, the test to be applied in the present circumstances is not whether or not the respondent was subjectively misled; it is sufficient to establish invalidity that the defect could mislead the recipient of the notice.

(Original emphasis.)

143    After referring to the decisions in Nugent and Bonds Industries his Honour identified the issue before him to be whether the address identified in the bankruptcy notice was one at which, during the relevant period, it was reasonably practicable for the debtor to make payment or to offer to secure or compound the debt. His Honour then considered what a PO Box actually constitutes and, relying on the decision in Sarikaya v Victorian WorkCover Authority (1997) 80 FCR 262, found that it is “a container at a post office into which mail that has been duly posted is placed by the postal authorities for retrieval by or on behalf of the holder of the box” and that it was difficult to see how such a container could be a place where the debtor could make payment or offer to secure or compound the debt: at [12]-[13]. His Honour concluded that a PO Box was not an address at which during the relevant period it was reasonably practicable for a debtor to make payment or to offer to secure or compound a debt: at [14].

144    The issue raised by Daniel and Michael is whether the address identified in the Bankruptcy Notices, being Mr Arnautovic’s place of business, was one at which during the relevant period, being the period from 23 to 30 September 2019, it was reasonably practicable for each of them to make payment or to offer to secure or compound the debt the subject of the Bankruptcy Notices. More particularly, in oral submissions Daniel and Michael refined their position. It seems that they accept that payment could be made at Mr Arnautovic’s business address but contend that they were not able to secure or compound the debt by attending at the address specified in the Bankruptcy Notices. They said, had they done so, Mr Arnautovic would have not had the requisite authority to deal with them because he was no longer the liquidator of St Gregory’s.

145    A bankruptcy notice must be in accordance with the form prescribed by the Bankruptcy Regulations 1996 (Cth): see s 41(2) of the Act. The relevant form is Form 1 which requires the inclusion of the creditor’s name and address and at item 2 on page 2 the “name and address, including telephone number, fax and email address if appropriate” where “[p]ayment of the debt can be made to”. The Bankruptcy Notices include the information set out at [15] above and, in particular, at item 2 on page 2 set out Mr Arnautovic’s business address, telephone number and email address. The evidence establishes that the address included in the Bankruptcy Notices was Mr Arnautovic’s business address at the time of the issue of the Bankruptcy Notices and continues to be his business address.

146    Although the Liquidators are the petitioning creditors, the relevant creditor for the purposes of the Bankruptcy Notices was Mr Arnautovic. True it is that by the time an order was made extending the time for compliance with the Bankruptcy Notices Mr Arnautovic was no longer the liquidator of St Gregory’s, but it does not follow that his address was no longer valid or that the Bankruptcy Notices were invalid by reason of that change. That that is so is apparent from the following matters.

147    First, throughout the currency of the Bankruptcy Notices the judgment creditor named in the 2017 Judgment, which was found to be the relevant judgment for the purposes of compliance with the Bankruptcy Notices, was Mr Arnautovic. The address of the judgment creditor, being Mr Arnautovic’s business address, was correctly stated in the Bankruptcy Notices.

148    Secondly, payment to Mr Arnautovic of the amount claimed in the Bankruptcy Notices would have been a good discharge of the debt.

149    I accept the Liquidators’ submission that an analogy can be drawn between this case and Francis v Eggleston. As set out at [76] above, there the appellant was indebted to a law firm, constituted by a partnership, for assessed legal costs. The assessment had been registered as a judgment in favour of the firm. The partnership was subsequently dissolved and a company incorporated. The members of the firm assigned all the business, work in progress, book debts and liabilities of their former partnership to the new company. A little time later the appellant was served with a bankruptcy notice which named the creditor as “Eggleston Mitchell Lawyers”. The appellant did not comply with the bankruptcy notice and the company, Eggleston Mitchell Lawyers Pty Ltd, filed a creditor’s petition which named the petitioning creditor as “Eggleston Mitchell Lawyers (ACN 131 952 942)”.

150    On appeal it was contended that the primary judge erred in finding that the company was a “creditor” of the appellant as at the date of the sequestration order. The issue before the Full Court was whether the company was the appellant’s creditor in respect of the debt the subject of the judgment at the times the bankruptcy notice operated and the sequestration order was made. The Full Court held (at [20]) that, in circumstances where no notice of the assignment to the company of the judgment had been given to the appellant, if the appellant had complied with the bankruptcy notice by paying the firm in whose name it was issued that would have been a good discharge of the debt. At [21] the Full Court held that the company was beneficially entitled to the firm’s book debts, including the choses in action represented by any right of the firm to enforce or bring proceedings in respect of the money due to it under the relevant judgment. By analogy, if Daniel and/or Michael had paid the amounts claimed in the Bankruptcy Notices to Mr Arnautovic that would have been a good discharge of the debt despite the fact that the Liquidators in their capacity as liquidators of St Gregory’s were beneficially entitled to those debts by reason of their appointment as liquidators of St Gregory’s.

151    Further, Mr Arnautovic as the former liquidator and an officer of the Court had an obligation to account for any monies he received in satisfaction of the 2017 Judgment to the Liquidators. That obligation, which arises from the office Mr Arnautovic held, is recognised and reinforced by the arrangements between Mr Arnautovic and the Liquidators which are the subject of Mr Arnautovic’s evidence.

152    Thirdly, insofar as compromising the debt was concerned, Mr Arnautovic as the named judgment creditor for the purpose of the 2017 Judgment had the authority to compromise the debt, albeit that in doing so he may have breached other obligations to the Liquidators.

153    Fourthly, this case is unlike Metledge where the address provided was a PO Box, a receptacle for the receipt of mail where no person could be found, let alone a person with authority to compromise the debt. Here the address provided was that of the judgment creditor and former liquidator of St Gregory’s. Had Daniel and/or Michael wished to make arrangements for settlement of the debt or to secure or compound it, they could have done so by attending at the address specified in the Bankruptcy Notices.

154    The evidence establishes that Mr Arnautovic was under an obligation to assist the Liquidators. I infer that had Mr Arnautovic been approached by either Daniel or Michael with a view to compromising the debts claimed, Mr Arnautovic would have, in turn, approached the Liquidators. As Lockhart J said in Nugent “it may be that in certain circumstances although [the debtor] may make arrangements to secure or compound by calling at the address stated in the notice he will do so by speaking to persons who are themselves not physically at that address, but are, for example, available on the telephone. Examples of the possibilities are manifold and need no elaboration”.

155    It follows that I am satisfied that the address included in the Bankruptcy Notices was one at which during the currency of the notices the debtors, Daniel and/or Michael, could not only make payment of the amounts claimed in those notices but one where they could also make arrangements to secure or compound those debts.

156    If I am wrong in that conclusion such that there is a defect in the Bankruptcy Notices by reason of the inclusion of Mr Arnautovic’s address in them, I am satisfied that any such a defect is formal in nature and could not reasonably have misled Daniel and Michael. That is because the fact of Mr Arnautovic’s retirement and replacement as a liquidator of St Gregory’s was known to Daniel and Michael; the issue was raised and addressed in Ghougassian (No 1) (at [3] and [113]) and a copy of the orders made appointing the Liquidators in place of Mr Arnautovic was provided to their lawyer together with details of a bank account into which payment of the amount claimed in the Bankruptcy Notices could be made. That being so, as the Liquidators submit, s 306 of the Act has the effect that the proceeding on the petition is not invalidated only by that defect: see Bonds Industries at [20].

Other sufficient causes – s 52(2)(b) of the Act

157    Michael and Daniel also rely on other sufficient causes as to why a sequestration order ought not to be made against them pursuant to s 52(2)(b) of the Act.

Set off – the 2019 Judgment

158    This ground, set out at paras 6-10 and 12 of the Amended Notices of Opposition, concerns the 2019 Judgment in the sum of $327,010.09 included in each of the creditor’s petitions. Daniel and Michael contend that:

(1)    on 2 March 2020 they filed an interlocutory process in Supreme Court proceeding 2019/299647 in which they seek an order that “the Liquidators proceed to seek judicial approval of the distribution of the surplus property in accordance with the special resolution of the incorporated association and/or under s.488(2) Corporations Act”;

(2)    as at 6 April 2020 the interlocutory process had not yet been determined; and

(3)    should this Court make sequestration orders prior to the determination of the interlocutory process, Daniel and Michael will suffer prejudice as they will be denied the benefit of their litigation.

Parties’ submissions

159    Both Daniel and Michael’s, on the one hand, and the Liquidators’, on the other, submissions on the issue of set off were scant. While the parties submit that this ground was dealt with in Ghougassian (No 1), I do not understand that to be so in relation to the 2019 Judgment.

160    Daniel and Michael submit that where the question is whether a creditor’s petition should be adjourned or dismissed the relevant principles are not necessarily those which should guide the exercise of the discretion to set aside or extend the time for compliance with a bankruptcy notice because the commission of an act of bankruptcy is of a different order of gravity given the change of status brought about by the making of a sequestration order.

161    Daniel and Michael contend that the existence of a “legitimate” set off, cross demand or counter claim by the debtor against the creditor will often be a sufficient cause in exercising the discretion of the Court under s 52(2)(b) of the Act. Thus they say the fact that the debtor has a right of set off, cross claim, mutual credit or the like so that, on a balance of account, less than the amount prescribed by s 44(1)(a) of the Act is owed by him or her, may well be “sufficient cause” for dismissal.

162    Daniel and Michael submit, having regard to the wide discretion that the Court may have even if the bankruptcy notice grounding an act of bankruptcy has been upheld either by consent or after a contested hearing, that the Court may consider that there is some doubt as to the debt relied upon by the applicant creditor, and go behind the judgment and decline to make a sequestration order, citing Makhoul v Barnes (1995) 60 FCR 752.

163    Daniel and Michael contend that in circumstances where there is litigation pending in another court, and where the debtor has prospects of success, the court will ordinarily be satisfied that there is other sufficient cause that a sequestration order ought not to be made. They say that if the claim is ultimately less than the petitioning creditor’s claim, the proper course is to require the debtor to pay the difference if the debtor desires to avoid a sequestration order.

164    The Liquidators submit that this ground is without substance. They say that while it is correct that the existence of a legitimate set off, cross demand or counter claim by the debtor against the creditor may be a sufficient cause in exercising the discretion under s 52(2)(b) of the Act, it bears emphasising that the claim must be legitimate. They contend that Daniel and Michael’s evidence does not establish a legitimate claim.

Consideration

165    As the parties acknowledge, the existence of a legitimate set off, cross demand or counter claim by a debtor against a creditor may amount to “other sufficient cause” for the purposes of s 52(2)(b) of the Act such that the Court would exercise its discretion to dismiss a creditor’s petition: see Totev v Sfar [2006] FCA 470; (2006) 230 ALR 236 (Totev v Sfar) at [33] and following. It is for the debtor to demonstrate that there is “other sufficient cause”.

166    In Totev v Sfar at [44] Allsop J (as his Honour then was) relevantly said:

… Nevertheless, what is clear is that the fact that there has been an act of bankruptcy does not make the claim by the debtor against the petitioning creditor irrelevant. It should be examined to assess whether it can be said that there is sufficient evidence to show that it is a real claim which is likely to succeed. Also relevant is the stage of the litigation, the length of time for its vindication and any other relevant matters. It goes without saying that solvency is a relevant consideration. In some circumstances, it may be difficult to assess the likelihood of success of the debtor’s claim. All the authorities show that central to the showing of “other sufficient cause” for the purposes of s 52(2)(b) is the question of the prospects of success. The case is not tried in the bankruptcy court, but the material is examined for the purpose alluded to by Gibbs J in Re Schmidt. As Olney J identified in Re James, if a likelihood of success can be demonstrated, that may justify a refusal of a sequestration order. Alternatively, the circumstances may reveal a claim of a character and nature in which likelihood of success cannot be predicted with accuracy but in the circumstances the petition should be dismissed or an adjournment of the petition should granted: see the approach of Sundberg J in Ling v Commonwealth (1996) 68 FCR 180 at 195-196, with which Wilcox J and Whitlam J agreed. If the claim is one in which credit of witnesses will be involved, and a debtor sets out the nature and detail of the case and all his or her evidence the debtor may only be able to persuade the bankruptcy court that, if relevant criteria are believed, he or she has good prospects of success. What should be proved, or what is sufficient to be proved, in any given case will depend upon the circumstances. The context in which the issue arises is also important. The discretion involved in s 52(2)(b) is a broad one, and, importantly, it is informed by public interest considerations concerned with the dealing with insolvents.

167    The evidence relied on by Daniel and Michael in relation to the set off based on the filing of an interlocutory process in the 2019 Proceeding is sparse. Daniel and Michael each refer to the relevant interlocutory process, annex a copy of it to their respective affidavit and set out the orders made in the 2019 Proceeding on 6 April 2020. Relevantly, on that occasion, Black J made an order relisting the matter on 20 April 2020 and:

indicated that the matter will be specially fixed if the parties can reach agreement at a time at which both legal representatives are available and that time is suitable to the Court. Parties to advise if agreement reached as to such a time.

168    Each of Daniel and Michael say that at the time of swearing their affidavits relied on in these proceedings the 2019 Proceeding is ongoing and yet to be finally heard and determined. As at the date of hearing before me no further evidence was provided in relation to the 2019 Proceeding and the interlocutory process.

169    Given that, there is simply no basis upon which I can assess the likelihood of success of Daniel and Michael’s interlocutory application or, if successful, the likely amount of any judgment in their favour. Nor is there sufficient evidence for me to determine whether this is an application where the likelihood of success could not be predicted with any accuracy such that I would grant an adjournment or dismiss the creditor’s petitions. Daniel and Michael have failed to establish, at even a minimum, the nature of the claim said to amount to a set off, cross demand or counter claim and how the outcome of the interlocutory process will affect the 2019 Judgment. In the circumstances they have failed to discharge their onus and to satisfy me that, because of the interlocutory process filed in the 2019 Proceeding, there is other sufficient cause as to why a sequestration order ought not to be made.

170    It follows that this ground is not made out.

Set off - costs order yet to be assessed/agreed in Michael’s Bankruptcy Notice

171    This ground is only relied on by Michael at paras 13-18 of his Amended Notice of Opposition. It concerns orders 6 and 7 made by Black J on 16 November 2015 (see [10] above) to the effect that the liquidator and St Gregory’s pay Michael and Mrs Ghougassian’s costs of the cross-claim on an ordinary basis as agreed or as assessed, with the assessment to take place on the basis that 25% of the costs be treated as attributable to the cross-claim and order 1 of the March 2020 Orders made in the 2019 Proceeding (see [24] above).

172    In his Amended Notice of Opposition Michael contends that order 1 of the March 2020 Orders is “live and must be given full effect for the benefit of its litigation”, that the order “is not a spent or expired order and is currently being complied with” and that any “adverse Order by this Court made prior to fulfilment of Order 1 … will undermine the force of law in that Order and cause prejudice to the respondent”. Michael also contends that “on a simple arithmetic of $320,000 being 75% of the costs in this cause, then 25% … is approximately $106,000 which upon finalisation of the bill of costs and assessment will be set off”.

Michael’s submissions

173    Michael submits that there is, at present, an unassessed costs order that should be set off against the amounts claimed in Michael’s Bankruptcy Notice. He says that while that amount is yet to be assessed or agreed for the purposes of this proceeding, there is no reason the Court would not accept the quantification given to it in John McInerney and Phillip Campbell-Wilson in their capacity as liquidators of St Gregory’s Armenian School Inc v Michael Ghougassian & Anor [2020] NSWSC 197 at [31] where Gleeson J said:

Therefore, at best, Micahel Ghougassians [sic] has a costs order with a potential value of about $80,000 to set off against the judgment for $320,506.36. That assumes favourably for Michael Ghougassian, that he proceeds to have the costs order in his favour assessed.

Consideration

174    This ground cannot succeed.

175    The relevant costs order was made in Michael’s favour in 2015. Over a period of five years has passed since the order was made, and despite order 1 of the March 2020 Orders which gave Michael the benefit of a partial stay provided he gave an undertaking and took certain steps, Michael has not taken any step to have the costs of the cross-claim assessed.

176    There is no evidence before me that Michael intends to have the costs assessed. Nor is there evidence in relation to the steps, if any, he has or intends to take or as to the likely amount that he will recover on an assessment. The only evidence before me is that as at 8 July 2020, some four months after the order had been made, Michael had not taken any steps to commence the costs assessment process. Not only has Michael not taken all necessary steps to commence and pursue the costs assessments “with due expedition” but, assuming a set off is available, the amount of the set off is unknown.

177    In any event, had Michael commenced the costs assessment process it seems that the maximum amount that could be achieved on an assessment is $80,000. Indeed Michael seems to accept as much. That is far less than the amount claimed in the creditor’s petition, even putting the 2013 Judgment and the 2014 Judgment to one side.

178    In Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 2) (1994) 51 FCR 14 at 19-20 Olney J, after observing that on the hearing of a creditor’s petition a debtor may seek to raise a claimed set off or cross demand as a basis for seeking to persuade the Court that there is a sufficient cause to decline to make a sequestration order, said:

… The extent of this Court's enquiry into a claim by a debtor in this context was considered by Gibbs J (in the Federal Court of Bankruptcy) in Re Schimdt: Ex parte Anglewood Ptv Ltd [(1968) 13 FLR 111], where his Honour said in a case in which a debtor claimed to be entitled to unliquidated damages in tort against the petitioning creditor (at 116):

“... As a general rule this Court is not an appropriate forum to decide such a claim and is limited to forming a view as to whether it appears that there is sufficient validity in the debtor’s claims to justify a dismissal or adjournment of the petition. I agree in general with what was said in Re Player in relation to this question. Considerable evidence directed to this issue has been given before me and it seems to me that I ought to consider this evidence for the purpose of deciding only whether it is probable that the debtor has against the petitioning creditor a claim which is likely to succeed. If I am satisfied that the debtor has a claim against the petitioning creditor equal to or exceeding the amount of the judgment debt, I should not make a sequestration order. If, however, it appears that there is has a claim which is less than the amount of the petitioning creditor’s judgment debt, the proper course would seem to be to require the debtor, if he desires to avoid a sequestration order, to pay the difference between the amount of the judgment debt and the amount which it seems probable to me that he will recover in the proceedings against the petitioning creditor. In many cases it would be more convenient, assuming that the debtor showed that he had a real claim to litigate, to adjourn the proceedings to enable his claim to be tried in the ordinary courts, but that course was not taken in the present case, partly because the existence of any valid claim was vigorously denied by the petitioning creditor and partly because the proceedings in the Supreme Court have been somewhat dilatory.”

(Emphasis added.)

179    Assuming that the value of Michael’s (and Mrs Ghougassian’s) assessed costs of the cross-claim is $80,000, he has not offered to pay the difference between the amount claimed in the creditor’s petition and that amount. The amount payable would be $430,771.99 if the 2013 Judgment and the 2014 Judgment are excluded from the amount claimed in the creditor’s petition, or $630,894.22 if they are not so excluded. Michael has not offered to pay either amount.

180    In those circumstances Michael has not established that the set off based on the costs order in his favour is a sufficient cause for me to decline to make a sequestration order. Nor would I, in circumstances where Michael has taken no steps to commence the costs assessment process and the maximum amount he can recover is significantly less, on any view, than the amount claimed in the creditor’s petition, adjourn the creditor’s petition to a date after the assessment process is complete.

Solvency – s 52(2)(a) of the Act

181    Daniel and Michael each contend at para 35 of the Amended Notices of Opposition that they are solvent such that a sequestration order should not be made. They rely on the following evidence:

(1)    Michael asserts that he has demonstrated his solvency. He relies on a financial statement in which he estimates his weekly income at nil, his assets at $113,100, his average weekly expenses at $2,000 and his liabilities at $500,000 and an accompanying bank statement for the period from 9 April 2019 to 9 October 2019 for an account in his and Mrs Ghougassian’s names; and

(2)    Daniel also asserts that he has demonstrated his solvency. He relies on a financial statement in which he estimates his average weekly income at $1,500, his assets at $765,000, his average weekly expenses at $952 and his liabilities at $480,000 and the financial accounts and a tax return for Norwest Neurology Pty Ltd, of which Daniel is the director, for the year ended 30 June 2019.

Daniel and Michael’s submissions

182    Daniel and Michael submit that they have given evidence as to their assets and liabilities and that, depending on the determination of the Court with respect to whether the judgments are stayed by virtue of non-compliance with the requirements of r 39.1 of the UCPR, it is possible that each of them is solvent given their respective asset position.

183    In oral submissions, counsel for Daniel and Michael conceded that if I was against his clients on all of the grounds raised then solvency could not be made out. He submitted, however, that if there was a finding that various of the judgments had been stayed such that only the 2019 Judgment was available to the Liquidators then potentially, because both Daniel and Michael appear to have real property as disclosed in their affidavits, they are solvent.

Consideration

184    The test for determining solvency was not in dispute. In Sandell v Porter (1966) 115 CLR 666 at 670 Barwick CJ (with whom McTiernan and Windeyer JJ agreed) said:

… Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time—relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.