Supreme Court confirms the law around post-bankruptcy interest

DMAW Lawyers' Justin Sharman and Annabel Nettle acted for former bankrupts in appealing a Magistrates Court decision that had allowed a creditor of their bankrupt estates to pursue them for interest on a pre-bankruptcy judgment debt.

Peter and Jason Doman had been found liable in the District Court to pay Leadenhall Australia Pty Ltd a success fee arising from an earlier transaction involving the sale of their farming enterprise. Following the District Court judgment, each of Peter and Jason petitioned their own bankruptcy.

Leadenhall brought a separate Magistrates Court claim seeking interest accruing post-bankruptcy on the judgment debt in the sum of the Court’s statutory limit ($100,000). The Doman’s defended the Magistrates Court claim on the basis leave was required under s 58(3) of the Bankruptcy Act 1966 (Cth) to pursue them and that such leave should not be granted in the circumstances, including that to permit a creditor to pursue interest post-bankruptcy offended basic and long-settled principles of bankruptcy law and practice. The Magistrate disagreed and entered judgment. In so doing, the learned Magistrate accepted a construction of s 82(3B) of the Act that because interest post-bankruptcy is not provable in bankruptcy, it is able to be pursued separately and outside of bankruptcy.

In a decision of Justice McDonald delivered on 23 June 2023, her Honour allowed the appeal, set aside the Magistrate’s decision and awarded costs in favour of the Doman’s. In so doing, her Honour applied a construction of s 82(3B) consistent with centuries of bankruptcy practice, namely that interest accruing post-bankruptcy is only payable in the event of a surplus in the bankrupt estate, and followed the decision of the Full Court of the Supreme Court of Tasmania in Edwards v Stocks (2008) 17 Tas R 408.

DMAW Lawyers are pleased for our clients who, had the Magistrate’s decision been allowed to stand, faced a subsequent bankruptcy on the basis of an interest claim.

Thank you to Philip Adams of counsel who appeared on our instructions on the appeal.

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