Turner v Mortgage Elimination Services Pty Ltd & Anor [2009] FMCA 27 (23 January 2009)

Last Updated: 29 January 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

TURNER v MORTGAGE ELIMINATION SERVICES PTY LTD & ANOR

[2009] FMCA 27

BANKRUPTCY – Application to set aside a Bankruptcy Notice – application dismissed.

Bankruptcy Act 1966 (Cth) Bankruptcy Regulations 1996 (Cth), reg.16 Corporations Act 2001 (Cth), s.553C Legal Profession Act 2004 (NSW), Division 11, Subdivision 4

Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321 Universal Financial Group v Mortgage Elimination Services [2006] NSWSC 1132

Applicant:

WARREN DONALD TURNER

First Respondent:

MORTGAGE ELIMINATION SERVICES PTY LTD (IN LIQ.) (ACN 057 065 504)

Second Respondent:

ALAN LEWIS IN HIS CAPACITY AS LIQUIDATOR OF MORTGAGE ELIMINATION SERVICES PTY LTD (IN LIQ.)

File number:

SYG 1326 of 2008

Judgment of:

Lloyd-Jones FM

Hearing date:

12 August 2008

Delivered at:

Sydney

Delivered on:

23 January 2009

REPRESENTATION

Solicitors for the Applicant:

Foleys Solicitors

Counsel for the Respondents:

Mr S Golledge

Solicitors for the Respondents:

Hewitts Commercial Lawyers

ORDERS

(1) The application to have Bankruptcy Notice NN 0304 of 2008 set aside is dismissed.

(2) The applicant is to pay the respondents costs as agreed or, in the absence of agreement, to be assessed.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SYG 1326 of 2008

WARREN DONALD TURNER

Applicant

And

MORTGAGE ELIMINATION SERVICES PTY LTD (IN LIQ.) (ACN 057 065 504)

First Respondent

ALAN LEWIS IN HIS CAPACITY AS LIQUIDATOR OF MORTGAGE ELIMINATION SERVICES PTY LTD (IN LIQ.)

Second Respondent

REASONS FOR JUDGMENT

The proceedings

1. By an application filed on 23 May 2008, Warren Donald Turner (the applicant debtor) seeks to have the Bankruptcy Notice NN 0304 of 2008 issued by Mortgage Elimination Services Pty Ltd (in liquidation) (CAN 057 065 504) and Alan Lewis (liquidator of Mortgage Elimination Services Pty Ltd (in liquidation)) set aside. Mr Turner claims that:
   1. there was invalid service of the Bankruptcy Notice;
   2. the Bankruptcy Notice is defective; and
   100. the amount stated as owing in the Bankruptcy Notice is incorrect.

This application is opposed by the respondent creditors.

2. The bases of Mr Turner’s argument to have the Notice set aside are that:
   1. Service of the Bankruptcy Notice was defective in that the Notice was founded by only part of a cost determination obtained by the respondents. Mr Turner complains that the creditors had two judgments against him but only one had been relied upon to found the Notice.
   2. The copy of the Notice Mr Turner received was subject to a substituted service order, which was not attached to the Notice left at his East Maitland residence.
   100. The Notice contained an overstatement because Mr Turner was entitled to a credit against or reduction in the amount of the judgment to one of the creditors.
   4. Mr Turner has a set-off or cross claim.
3. The Bankruptcy Notice was issued on 1 February 2008 and it is claimed was it forwarded by post to Mr Turner’s East Maitland address. The issue of service by mail is discussed below. The respondent creditors claim a debt of $135,433.82 based on the District Court of New South Wales judgment/order made at Newcastle on 30 November 2007. The debtor was required, within 21 days of that service date, to pay the creditors the amount of the debt, or make arrangements to their satisfaction for settlement of the debt.
4. The following evidence was filed in these proceedings:
   1. Exhibit A1: Affidavit in support of application to set aside Bankruptcy Notice sworn by Warren Donald Turner on 23 May 2008 (first affidavit of Mr Turner);
   2. Exhibit A2: Affidavit of Warren Donald Turner sworn on 17 July 2008 (second affidavit of Mr Turner);
   100. Exhibit A3: Affidavit in support of application to set aside Bankruptcy Notice sworn by Warren Donald Turner on 8 August 2008 (third affidavit of Mr Turner);
   4. Exhibit A4: Formal proof of debt or claim (Form 535);
   5. Exhibit A5: Affidavit of Christopher James Cochburn sworn on 17 June 2008;
   6. Exhibit R1: Australian Securities and Investments Commission – historical company extract;
   7. Exhibit R2: Bank statement;
   8. Exhibit R3: Balance sheet for Mortgage Elimination Service as of June 2005.
5. The following people gave sworn testimony and were cross examined on that material:
   1. Warren Donald Turner (Transcript of hearing, pp.9-27);
   2. Scott Anthony Newton (Transcript of hearing, pp.29-33)

Consideration

Service

6. Mr Foley, appearing for Mr Turner, claims that the Bankruptcy Notice and supporting material left at Mr Turner’s residence appear to have been sent to him by mail. However, it did not contain any Court order as to the method that the Bankruptcy Notice was to be served. The first affidavit of Mr Turner states at para.2:
   • I found a letter from Hewitts, Lawyers dated 21 April 2008 at my residence in East Maitland saying that I was deemed to have been served with a Bankruptcy Notice No.NN0304/2008 (“the notice”) which was dated 12 September 2007 [actually dated 1 February 2008]. Annexed hereto and marked “AA” is a true copy of a letter and the accompanying notice.

Annexure “A” to the first affidavit of Mr Turner is a letter from Hewitts Commercial Lawyers dated 21 April 2008 which states:

Pursuant to orders made in the Federal Magistrates Court on 18 April 2008 service of this Bankruptcy Notice would be deemed to be effected upon you on 5 May 2008.

7. Mr Golledge, for the respondents, submits that the respondents’ position is that service has been validly effected in accordance with reg.16 of the Bankruptcy Regulations 1996 (Cth) (“the Regulations”) and that no reliance was placed on the order for substituted service. The regulation relevantly states:
   • 16.01(1) Unless the contrary intention appears, when the document is required or permitted by the act or these regulations to be given or sent to, or served on, a person (other than a person mentioned in reg.16.02), the document may be:
   • a) sent by post, or by a courier service, to the person that his or her last known address; or
   • b) ...
   • c) left, in an envelope or similar package marked with the person’s name, at the last known address of the person; or
   • d) ...
   • e) ...
   • (2) A document given or sent to, or served on, a person is in accordance with sub-regulation (1) is taken, in absence of proof to the contrary, to have been received by, or served on, the person:
   • a) in the case of service in accordance with paragraph 1(a) or 1(b) – when the document would, in the due course of post or business practice, as the case requires, be delivered to the person’s address or document exchange facility; and
   • b) in the case of service in accordance with paragraph 1(c), 1(d) or 1(e) – when the document is left, or transmitted as the case requires.
8. The evidence in respect of receiving the Notice is contained in the first affidavit of Mr Turner (reproduced above at [6]), which he confirmed in cross examination:
   • Mr Golledge: Now you found this Bankruptcy Notice that is the subject of this application somewhere in your home in East Maitland, did you?
   • Mr Turner: My wife found it.
   • Mr Golledge: Where? Did she tell you?
   • Mr Turner: I don’t recall now.
   • Mr Golledge: She gave it to you, did she?
   • Mr Turner: Yes.
   • Mr Golledge: And did she say something to you when she gave it to you?
   • Mr Turner: Here is a letter.
   • Mr Golledge: And that was the letter which is annexed to your first affidavit, is that right, Sir?
   • Mr Turner: Which affidavit was that? Is that 17th?
   • Mr Golledge: Your affidavit, 23 May 2008. Could the witness be shown a copy of that affidavit and go to Annexure “A” would you Sir? That is, the third page of that bundle.
   • Mr Turner: Yes.
   • Mr Golledge: Is that the letter you’re referring to?
   • Mr Turner: You came into possession of that having been given it by your wife?
   • Mr Golledge: And do you have any recollection by reference to the date you swore that the affidavit as to when you received the Bankruptcy Notice?
   • Mr Turner: No I don’t.
   • Mr Golledge: No?
   • Mr Turner: Not remembering the dates specifically.
   • Mr Golledge: I don’t mean to interrupt, sorry, sir, but you received it at your home at Glenayre Close, East Maitland?
   • Mr Turner: Yes.
   • Mr Golledge: And that, Sir, is an address that you gave as your residence to Mr Lewis, the liquidator, isn’t it?
   • Mr Turner: Yes. (Transcript of hearing, pp.18.20-19.00)
9. An order for substituted service was applied for and granted by Tesoriero R on 18 April 2008. However, that order is not before the Court and was not relied on by the respondents as proof of service.
10. Mr Golledge argues that in circumstances where a Court makes an order for substituted service of a Bankruptcy Notice and relies upon that substituted service, then the Notice needs to accompany the order. He acknowledged that in this case the order did not accompany the Notice and, consequently, the respondents are not able to rely upon proof of service. However, he argues that this does not matter because service has been effected in accordance with reg.16.
11. Mr Golledge also relied on Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321 where the Court held that orders for substituted service are permissive not exclusive. Their Honours stated at [30]:
    • [30] The appellant also contended that the order for substituted service itself constituted a contrary intention for the purposes of reg 16.01. Assuming the Court has power to preclude reliance on the modes of service prescribed by reg 16 (perhaps under s 309(2) of the Act), an order for substituted service will constitute a contrary intention only if it evinces an intention that it is to operate either to the exclusion of reg 16 or to the exclusion of any other mode of service. We agree with his Honour that the substituted service order is permissive in terms, prescribing a method “by which service may be effected”. It is silent about service otherwise than in accordance with its terms. The order does not constitute a contrary intention for the purposes of reg 16.01(1).
12. Mr Golledge submits that a creditor who obtains an order for substituted service can then serve in the normal way as prescribed by reg.16, personally or by substituted service. All methods remain open provided service is effected in accordance with one of these modes. The fact that service has not been effected in accordance with all three is of no significance. Therefore the omission of a copy of the order for substituted service means that the creditors cannot rely upon the order itself as a method of service. This does not prevent the creditors from simply relying upon reg.16 of the Regulations. Mr Golledge submits that compliance with reg.16 has been proved because Mr Turner accepted that he received the documents at his last known address in an envelope marked to his attention.
13. Mr Golledge already indicated that the respondents admitted that the order for substituted service was not left in Mr Turner’s mailbox by the process server. However, where it has been proven that a Bankruptcy Notice has actually been received by the debtor or service has otherwise been effected in accordance with the Regulations, reliance on the terms of the substituted service order is no longer necessary. Accordingly, even if the steps contemplated by the order for substituted service were not strictly complied with, the delivery and receipt of the Bankruptcy Notice by Mr Turner at his place of residence complied with reg.16.01.
14. In reply, Mr Foley submits that Skalkos v T & S Recoveries (supra) is distinguishable from this case. The case discusses how issue of a Bankruptcy Notice is now more administrative than curial and is provided for under reg.16.02 of the Regulations. Mr Foley submits that in this case, an application has been made for substituted service, which displaces the requirements as provided for in reg.16.02.
15. Although an order for substituted service was sought and obtained, ultimately it was not relied upon to effect service. Instead, the creditors served the Notice by post in accordance with reg.16.01(1)(a) and receipt was acknowledged by Mr Turner in cross examination. The contents of the letter from Hewitts Commercial Lawyers dated 21 April 2008 are incorrect in respect of service. However, I do not believe that renders the service invalid as all of the requirements under the Regulations have been complied with. The deemed date of service is subject to the operation of reg.16.01(2)(a) and not on 5 May 2008 as stated in the letter. I am satisfied that the Notice has been validly served and that the first ground cannot be sustained.

Whether the Bankruptcy Notice contained an understatement

16. Paragraphs 3 and 4 of the first affidavit of Mr Turner state:
    • 3. The debt that this Bankruptcy Notice relates to is founded on only one part of a Cost Determination obtained by the respondents in proceedings commenced by them in the Supreme Court of NSW.
    • 4. I believe that the sum specified in the Notice is an understatement of the amount in fact due upon the registering of those cost determinations. I am confused as to the correct sum allegedly due to the respondents. I am confused by the sum identified on the Notice as being due to the respondents to this application. There may also be a number of errors contained in the Calculation Schedule that forms of the Notice.
17. Mr Foley submits that the Bankruptcy Notice is defective because it does not, but should, include both costs orders. He submits that it was left to Mr Turner to speculate that there was an order made against him from the terms of the letter he received.
18. Mr Foley claims that Mr Turner was confused by the amount being claimed against him when he was clearly aware that there were not one but two certificates of determination of costs against him. One of which is contained in the Bankruptcy Notice and the other is referred to in the letter from Foleys Solicitors of 20 May 2008. The letter states:
    • Our client believes that the sum specified in the Notice is an understatement of the amount due, being an understatement of the judgment payable by him, and that understatement is a defect which is substantive. Our client also believes that the sum specified in the Notice is wrong. Our client is also misled and confused as to the correct sum allegedly due to the creditor, your clients. Further, he is misled and confused by the sum identified on the Notice as due to the creditor.
    • Our client also points out that the cost assessment, the subject of the judgment founding the Bankruptcy Notice, also concerns the cost order made in respect of that assessment – a copy of Form 4 is attached for your information. [Assessment No: 2007/4010]
19. The provisions regulating the assessment of party/party legal costs are contained in Division 11, Subdivision 4 of the Legal Profession Act 2004 (NSW) and the relevant sections are:
    • 367A Determinations of costs assessments for party/party costs
    • A costs assessor is to determine an application for an assessment of costs payable as a result of an order made by a court or tribunal by making a determination of the fair and reasonable amount of those costs.
    • 368 Certificate as to determination
    • (1) On making a determination of costs referred to in Subdivision 2 or 3 of this Division, a costs assessor is to issue a certificate that sets out the determination.
    • (2) A costs assessor may issue more than one certificate in relation to an application for costs assessment. Such certificates may be issued at the same time or at different stages of the assessment process.
    • (3) However, any such certificate may not set out the costs of the costs assessment within the meaning of section 369.
    • Note: Section 369 makes provision for the recovery of the costs of costs assessments relating to costs to which either section 317 (Effect of failure to disclose) or 364 (Assessment of costs-costs ordered by court or tribunal) applies. The section requires a costs assessor to issue a separate certificate setting out the costs of such costs assessments. That section also makes provision for the effect of such a certificate.
    • (4) In the case of an amount of costs that has been paid, the amount (if any) by which the amount paid exceeds the amount specified in any such certificate may be recovered as a debt in a court of competent jurisdiction.
    • (5) In the case of an amount of costs that has not been paid, the certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money, and with no further action, taken to be a judgment of that court for the amount of unpaid costs, and the rate of any interest payable in respect of that amount of costs is the rate of interest in the court in which the certificate is filed.
    • (5A) The costs assessor must forward the certificate or a copy of the certificate to:
    • (a) the Manager, Costs Assessment, and
    • (b) each party to the assessment, unless subsection (6) applies.
    • (6) If the costs of the costs assessor are payable by a party to the assessment as referred to in section 369, the costs assessor must:
    • (a) forward a copy of the certificate to the Manager, Costs Assessment only, and
    • (b) advise the parties that the certificate has been so forwarded and will be available to the parties on payment of the costs of the costs assessor.
    • (7) Subsection (6) does not apply:
    • (a) in respect of a certificate issued before the completion of the assessment process under subsection (2), or
    • (b) in such circumstances as may be prescribed by the regulations
    • 369 Costs of costs assessment
    • (1) This section applies to the costs of a costs assessment in relation to:
    • (a) costs to which section 317 (Effect of failure to disclose) applies, and
    • (b) costs to which section 364 (Assessment of costs-costs ordered by court or tribunal) applies, and
    • (c) costs that on assessment are reduced by 15% or more.
    • (2) A costs assessor is, subject to this section, to determine the costs of a costs assessment to which this section applies.
    • (2A) Subject to any order of or the rules of the relevant court or tribunal, the costs assessor may determine by whom and to what extent the costs of an assessment referred to in section 364 (Assessment of costs-costs ordered by court or tribunal) are payable and include the determination in the certificate issued under this section in relation to the assessment.
    • (3) The costs of a costs assessment to which this section applies are payable:
    • (a) for a costs assessment in relation to costs to which section 317 (Effect of failure to disclose) applies-by the law practice that provided the legal services concerned, or
    • (b) for a costs assessment in relation to costs to which section 364 (Assessment of costs-costs ordered by court or tribunal) applies-by such persons, and to such extent, as may be determined by the costs assessor, or
    • (c) for a costs assessment in relation to costs that on assessment are reduced by 15% or more-by the law practice that provided the legal services concerned or, if the costs assessor so determines, by such persons, and to such extent, as may be determined by the costs assessor.
    • (4) The costs assessor may refer to the Supreme Court any special circumstances relating to a costs assessment and the Court may make any order it thinks fit concerning the costs of the costs assessment.
    • (5) On making a determination, a costs assessor may issue and forward to each party and the Manager, Costs Assessment a certificate that sets out the costs of the costs assessment.
    • (6) If the application for a costs assessment has been dealt with by more than one costs assessor, a certificate issued can set out the costs of any other costs assessor.
    • (7) The certificate is, on the filing of the certificate in the office or registry of a court having jurisdiction to order the payment of that amount of money, and with no further action, taken to be a judgment of that court for the amount of unpaid costs.
    • (8) The costs of the costs assessor are to be paid to the Manager, Costs Assessment.
    • (9) The Manager, Costs Assessment may take action to recover the costs of a costs assessor or Manager, Costs Assessment.
    • (10) In this section:
    • "costs of the costs assessment" includes the costs incurred by the costs assessor or the Manager, Costs Assessment in the course of a costs assessment under this Division, and also includes the costs related to the remuneration of the costs assessor.
20. At the conclusion of the assessment process (set out above), a creditor with the benefit of a costs award will receive two certificates, one for the quantum of costs payable pursuant to the Court order and another in respect of costs of the assessment process. Each determination is contained in a separate certificate and, upon lodgement in the registry, takes effect as a separate judgment.
21. Mr Golledge submits that there is no requirement under the Bankruptcy Act 1966 (Cth) that a creditor must include in a Bankruptcy Notice all debts owed to the creditor by the debtor when the Notice is issued. Provided that it is clear what claims are the subject of the Notice and what the debtor must do to satisfy it, the fact that there are other debts owed which are not claimed in the Notice is of no relevance. Mr Turner’s complaint is that the Bankruptcy Notice claims a debt which is understated because it does not include an additional amount to which the creditors are entitled under a Certificate of Determination of Costs (Assessment No: 2007/4010).
22. Unless the Notice is misleading as to what is required to be done to satisfy it then the existence of other debts, not claimed in the Notice, is of no significance.
23. I accept Mr Golledge’s submission that no confusion can arise in respect of this Notice, which is entirely unambiguous as to what is needed to be done by the debtor to satisfy it. The Schedule contains the judgment amount of $135,433.82, which is listed as the total debt owing (Bankruptcy Notice, p.5). Attached to the Notice is the judgment/order of the District Court of New South Wales, which states under the heading “Terms of Judgment/Order”:
    • 1. Pursuant to s.368(5) of the Legal Profession Act 2004 judgment be entered for the plaintiff in the amount of $135,433.82. A further attachment of Form 2, Certificate of Determination of Costs clearly sets out that amount of the determination.
24. Item 3 of the Notice clearly states what needs to be done to satisfy the Notice:
    • 3. You are required within 21 days after service on you of this Bankruptcy Notice:
      • a) to pay the creditor the amount of the debt; or
      • b) to make an arrangement to the creditor’s satisfaction for settlement of the debt [any authority].
25. I am satisfied that the Notice is unambiguous as to the amount claimed or what is required to comply with it. On the material before me, I am satisfied that this ground of the application cannot be sustained.

Whether the Bankruptcy Notice contains an overstatement

26. Mr Foley submits that Mr Turner believes he is owed money because he has certain cross claims and other judgments that the liquidator should be pursuing. The third affidavit of Mr Turner states at para.5:
    • I also believe that I am a major creditor of the first respondent and that large sums, including unpaid wages, are due to me. Annexed hereto and marked “D” is a true copy of the Report to Affairs and Statement Verifying the Report sworn 23 October 2005. To date I have never received any moneys from the second respondent nor have I been provided with any accounts concerning the first respondent. I do not know how the respondents have applied all the monies that they have received but I believe that I should be able to offset some of what I am owed against the debt claimed by the respondents.
27. Mr Foley submits that in his third affidavit, Mr Turner claims he is a major creditor of the first respondent and has large sums owing to him, including unpaid wages. In the attached copy of the Report as to Affairs and the Statement verifying the Report is a claim of unpaid wages for the period 1 July 1996 to 30 June 2005 in the amount of $394,160 (third affidavit of Mr Turner, Annexure D, Schedule E).
28. Annexure C to the third affidavit is a Receipt Created Tax Invoice of Lawfund Australia Pty Ltd made out in the name of “MES Smarter Mortgage Services Pty Ltd”. It records payments made to that organisation by entities including Australian First Mortgages and the Commonwealth Bank on behalf of Colonial First State. The amounts received by MES Smarter Mortgages are being paid to the liquidator, Mr Lewis, in accordance with the orders made by Austin J in the Supreme Court proceedings: Universal Financial Group v Mortgage Elimination Services [2006] NSWSC 1132.
29. Mr Foley submits if that is the case, Mr Turner should be entitled to credits because MES Smarter Mortgage Services was a joint judgment debtor with him in both cost orders. To the extent that monies are being received by the liquidator on behalf of MES Smarter Mortgage Services, Mr Turner should be credited with part of those funds. It is submitted that Mr Turner has not received any such funds which is a further reason for submitting that the Bankruptcy Notice is defective.
30. Mr Golledge submits that Mr Turner has not established any basis for asserting an entitlement to credit against the costs the subject of the Bankruptcy Notice. He argues that Mr Turner’s claim is misconceived and restates the effect of the judgment of Austin J on which the primary liability and related costs are based. In that judgment, Mortgage Elimination Services (the first respondent creditor in these proceedings) was declared entitled to receive, and continue to receive, trail commissions payable on loans introduced by that company or its agents. The attempt by Mr Turner and MES Smarter Mortgage Services to divert that commission income was held to be invalid.
31. Mr Golledge confirms that subsequent to the Supreme Court decision, Mortgage Elimination Services did receive trail commissions in respect of loans. However, these loans were organised by Mortgage Elimination Services and the Supreme Court order confirms the company’s entitlement to receive (and continue to receive) those commissions. The receipts to which Mr Foley refers are for receipt of money by the creditors. Mr Golledge submits that these sums of money rightly belong to the creditors and they are not obliged to account to either MES Smarter Mortgage Services or Mr Turner in respect of these amounts (orders of Austin J, 21 December 2006).
32. MES Smarter Mortgage Services introduced new clients to various banks and lending institutions and earned a commission in return. MES Smarter Mortgage Services had agreements with the Commonwealth Bank and members of the Australian Finance Group whereby it became entitled to receipt of commissions. The subject matter of the proceedings before Austin J was an attempt by the directors of MES Smarter Mortgage Services to divert that income through Notices of Assignment which were created when MES Smarter Mortgage Services was insolvent. As a result of those Notices the company, at least for a while, received commission income which had become payable pursuant to earlier agreements with the Commonwealth Bank and the Australian Finance Group.
33. Justice Austin found these transactions to be unlawful. His Honour also found that the income belonged to Mortgage Elimination Services to the extent that it had been received by MES Smarter Mortgage Services and there was an obligation for it to be repaid. Mortgage Elimination Services were held to be entitled to receive those payments from those lenders in the future. The entitlement to Mortgage Elimination Services, and subsequently to Mr Lewis as liquidator, does not give rise to an obligation to account to MES Smarter Mortgage Services, which had no entitlement to those monies.
34. It has been brought to my attention that although Mr Turner asserts that MES Smarter Mortgage Services has been deprived of commission income, no steps have been taken in the two years since the Supreme Court judgment was given to redress receipt by Mortgage Elimination Services and its liquidator of this income.
35. The suggestion that Mr Lewis was receiving money that he was not entitled to is directly inconsistent with the documents attached to the second affidavit of Mr Turner. In that affidavit are 36 Recipient Created Tax Invoices of Australian Finance Group for the period 22 September 2005 to 30 May 2008. Each invoice records the deposit of monies into MES Smarter Mortgage Services’s account, which is not a bank account controlled by Mr Lewis as liquidator. The MES Smarter Mortgage Services bank account is held at the Greenhills branch of the Commonwealth Bank. Mr Newtown confirmed in his evidence that the account had nothing to do with Mr Lewis because the monies were not covered by the orders of Austin J. Mr Golledge submits that MES Smarter Mortgage Services received those funds, which it was entitled to, and the submission that Mr Lewis received the funds is misconceived.
36. On the evidence before me, I am not satisfied that this ground establishes any basis to set aside the Bankruptcy Notice.

Set off

37. This ground was not contained in the original application but emerged in the third affidavit of Mr Turner, which states at para.5:
    • I also believe that I am a major creditor of the first respondent and that large sums, including unpaid wages, are due to me. Annexed hereto and marked “D” is a true copy of the Report of Affairs and Statement verifying the Report sworn 23 October 2005. To date I have never received any monies from the second respondent nor have I been provided with any accounts concerning the first respondent. I do not know how the respondents have applied all the monies that they have received but I believe that I should be able to off set some of what I have owed against the debt claimed by the respondents.
38. Mr Foley did not make any specific reference to this ground of review in his oral submissions before the Court. None of the affidavit material placed before the Court or the exhibits tendered during the hearing provide any details in respect of accrual of wages or making of loan payments. The only evidence before the Court is contained in the third affidavit of Mr Turner which is reproduced above. There has been no reference in the other affidavits or to any supporting evidence. I am not satisfied that the contents of this single paragraph are sufficient to establish any basis for a claim of a set off.
39. Section 553C of the Corporations Act 2001 (Cth) states:
    • Insolvent companies--mutual credit and set-off
    • (1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:
    • (a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
    • (b) the sum due from the one party is to be set off against any sum due from the other party; and
    • (c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.
    • (2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.
40. Mr Golledge submits that the provisions of s.553C would prevent Mr Turner from relying on a set off to reduce his liability to Mortgage Elimination Services because at the time he became indebted to the company, he was on notice that the company was insolvent. This aspect of the evidence has not been fully developed, however I note the submission. In the absence of any documentation to establish this claim I do not believe it is necessary to rely on s.553C as a basis for dismissing this ground.
41. I am not satisfied that it has been established that there is any basis to find that there is a set off and the ground should be rejected.

Conclusion

42. On the material before the Court I am satisfied that the application seeking that the Bankruptcy Notice NN 0304 of 2008 be set aside cannot be sustained and should be dismissed. Further the applicant is to pay the respondents’ costs as agreed or, in the absence of agreement, to be assessed.

I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.

Associate:

Date: 23 January 2009