In the matter of Mariconte v Nobarani [2020] FCA 1485, the Federal Court of Australia revisited the Court’s inherent power to set aside bankruptcy notices due to an abuse of process and cautioned against the use of bankruptcy notices as a debt collection method.

The proceedings arose from a six year dispute regarding the administration of a deceased estate. The Applicant alleged that the Respondent impermissibly issued the Bankruptcy Notice as a debt collection mechanism to recover a restitution judgment issued in prior proceedings. The Respondent tactically chose to claim the debt through a bankruptcy notice rather than applying for an ‘obvious order’ for the sale of the Applicant’s property which had been previously offered by the Supreme Court. This decision was made despite Parker J’s suggestions that issuing a bankruptcy notice was unlikely to be the ‘proper way for Mr Nobarani to proceed. The Respondent justified their decision on the basis that they had been entitled to payment for 8 months and believed that receiving the proceeds of sale through a sale order could result in liability as a recipient of disputed trust property or an unfair preference claim.

Although the Applicant had failed to pay or challenge the restitution judgment, the Court determined  that it was improper to use bankruptcy proceedings as an enforcement action when other avenues are available. The Court was critical of the Respondent’s failure to make any attempts to enforce the Restitution Judgment or to even make a demand for payment. Interestingly, the Court also held that evaluation of an abuse of process was not impacted by the fact that the Applicant had been served in an aggressive and ‘less than ideal’ manner.

This case serves as an important reminder that parties must strongly consider their purpose in issuing bankruptcy notices and ensure that other avenues of enforcement are contemplated first. Ultimately, the categories of conduct or circumstances for an abuse of process will remain open and responsive to contemporary values of justice. On this occasion, the Court has re-affirmed that the use of a bankruptcy notice to pressure debtors to pay a debt, rather than to invoke the Court’s jurisdiction regarding insolvency, is improper.

 

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