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Annulment of Bankruptcy

A recent Federal Court decision considered the importance of notices to be properly documented in respect of bankruptcy proceedings in circumstances where a creditor had assigned the debt of a debtor to a third party (“the assignee”).

In prior court proceedings the assignee was awarded default judgment against the debtor. Subsequently, the debtor did not pay the judgment sum and bankruptcy proceedings were commenced against the debtor with a bankruptcy notice (being a formal notice of demand requiring a debtor to pay) issued and served. The debtor did not pay the judgment debt within the required 21 days after being served with the bankruptcy notice which resulted in ‘an act of bankruptcy’ and as such the Federal Court made a sequestration order against the debtor.

The bankrupt debtor was successful in seeking an annulment of her bankruptcy pursuant to section 153B of the Bankruptcy Act. She challenged the bankruptcy on the basis that she did not receive notice that the debt had been assigned to the assignee. She further argued that, as a result of this failure of notice, she did not owe the debt to the assignee at all. The Court agreed with the debtor that as a result of not receiving the notice she did not owe the debt to the assignee. The Court further stated that had it been appraised of the fact that notice of the assignment of the debt had not been given to the debtor, no sequestration order would have been made in the first place as it would have been an improper exercise.

This case reminds us that it is vital that if you seek to enforce bankruptcy upon an individual you need to closely observe the correct practice at all times throughout the sequestration process, as even once a sequestration order has been made, it may be annulled if a deficiency subsequently comes to light.

If you have any queries regarding your legal issue please do not hesitate to contact us on 08 9422 8111 or buslaw@taitlegal.com.au