Earlier this year, we published an article on how a creditor can, in some cases, bankrupt their debtor. But how does this process differ when a court awards you, the creditor, judgment in a foreign currency?
The Bankruptcy Regulations 1966 (Cth) (Regulations) sets out how to convert the foreign amount, but is unclear on what exchange rate to use. All banks in Australia list varying exchange rates daily, so it is unclear how to convert the foreign judgment amount. There have been two recent decisions on this issue.
In 2015, the Federal Circuit Court of Australia decided that the telegraphic transfer rate (i.e. electronic payment) required a creditor to obtain the best exchange rate a bank could offer on the day. However, in 2016, the Federal Court of Australia decided differently. The Court held in this case that the telegraphic transfer rate required the creditor to apply a rate from a bank that is ‘generally current’ on the date the creditor converts the amount.
This article unpacks both decisions, and what they mean for creditors looking to enforce a judgment amount expressed in a foreign currency.
Jagatramka v Coeclerici Asia (Pte) Ltd (No 2) (2015) 302 FLR 320
The creditor, Coeclerici, succeeded in its claim in the United Kingdom against the debtor, Mr Jagatramka for two amounts:
- USD$8,804,336.42; and
In November 2014, Coeclerici sought to enforce the judgment and issued a bankruptcy notice against Mr Jagatramka for total payment of AUD$9,191,591.94. This represented the two judgment amounts, converted into Australian dollars, and included interest that had accrued after the judgment date.
In March 2015, Mr Jagatramka applied to the Court to set aside the bankruptcy notice. One of the reasons Mr Jagatramka put forward was that the exchange rate Coeclerici had used was not the telegraphic transfer rate as stated in sub-regulation 4.04(3) of the Regulations.
What Do The Regulations Require?
Under sub-regulation 4.04(2), where the judgment amount is expressed in a foreign currency, the bankruptcy notice must:
- state that the debtor can choose to pay the judgment amount either in a foreign currency or Australian dollars; and
- set out the exchange rate the creditor used and the conversion calculation.
Sub-regulation 4.04(3) then sets out how to determine the exchange rate. That is, the creditor must use the telegraphic rate of exchange current on two days before lodging the application for the bankruptcy notice.
What Does ‘Telegraphic Rate of Exchange’ Mean?
The Court first decided that ‘telegraphic rate of exchange’ (used in the regulations) and ‘telegraphic transfer rate’ (used in the bankruptcy notice) had the same meaning.
The Court then turned its attention to the word ‘prevailing’, which the Court decided meant the ‘best rate that an institution is willing and able to offer on that day or at a particular time of day’. ‘Best’ indicates the rate that will produce the lowest amount in Australian dollars.
How Had Coeclerici Converted the Judgment Amount?
The FX (foreign exchange) historical rates search on the Westpac Banking Corporation’s site allows users to view the past exchange rates the bank offered for various currencies. Coeclerici obtained the transfer rates through this search.
Westpac’s web page included the following disclaimers:
- exchange rates were indicative only;
- customers should not rely on these rates as an accurate representation of any final pricing; and
- customers should contact Westpac for up to date pricing before using the rates.
The rates also only applied for amounts up to AUD$100,000.
What Did the Court Find?
The Court noted that compliance with regulation 4.04 was essential for a valid bankruptcy notice. Coerclerici did not satisfy the Court that they had obtained the best rate that a bank institution was willing and able to offer on the day it converted the judgment amount.
Coerclerici did not provide any evidence that the:
- rates used were current on 28 October 2014 when they had made the calculation; or
- rates other financial institutions were willing and able to offer.
On this basis, the bankruptcy notice was invalid.
GE Commercial Australasia Pty Ltd v Tinkler  FCA 55
In this case, the Federal Court of Australia revisited the meaning of ‘prevailing’ in the context of a telegraphic transfer rate.
Tinkler, the debtor, was opposing a sequestration order (i.e. an order the court hands down to make a debtor bankrupt) because the creditor’s bankruptcy notice did not comply with the requirements set out in regulation 4.04. Consequently, the notice was invalid.
Tinkler argued that the rate of exchange the creditor used was incorrect. GE has not shown that the rate was the best available on the date they converted the judgment amount into Australian dollars.
What Method Had GE Used to Convert the Judgment Amount?
GE had accessed a foreign exchange rate in a similar manner to how Coeclerici had in the Jagatramka case.
GE first used Westpac’s exchange rate calculator to obtain the rate. Two days later – on the day they submitted the bankruptcy notice – GE used the historical rates search function to confirm the two rates were the same.
GE then used the rate displayed by the calculator – the rate to sell AUD in exchange for foreign currency – to calculate the rate used to buy AUD.
GE had saved images of the web pages they visited when they obtained the exchange rate. The calculator’s web page also displayed a statement that the rates were current as at a particular date and time.
What Did the Court Decide?
The Court decided that the word ‘prevailing’ in this context describes the exchange rate that is ‘generally current’ on the day the creditor converts the judgment amount. This was a departure from the Jagatramka case, where the Court held that prevailing meant the most favourable rate available to exchange a particular amount.
The Court gave a number of reasons for this conclusion, including:
- the intention of the regulations is to promote certainty, rather than require the creditor to identify a rate that is favourable to the debtor;
- the impracticality of requiring the creditor to obtain an actual rate from a number of institutions; and
- the need to identify a rate is not for the purpose of conducting an actual transaction, but to provide the debtor with an option to comply with the notice by payment in Australian dollars.
The Court stated that a creditor might use a rate that is ‘generally current’ and was not required to provide evidence of other exchange rates that were current on the same date.
Creditors looking to enforce a judgment amount expressed in a foreign currency should be mindful about converting the amount into AUD. Ideally, it’s sensible to maintain at least:
- a record of the rate you use,
- the date you obtained the rate, and
- the bank you obtained the rate from.
You should save the information from the relevant source (e.g. a screenshot of the relevant web page) and include this with your bankruptcy notice. It’s always best to speak with a banking and finance lawyer experienced in bankruptcy proceedings. The rules are not always clear and it’s easy to make a mistake if you are unfamiliar with judgments in foreign currency. If you have any questions, get in touch on 1300 544 755 or fill out the form on this page.
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