Defective bankruptcy notices – a lifeline: Grant v Green & Associates Pty Ltd

By Alicia Hill, Principal and Matthew Deetlefs, Law Clerk

Invalidating a bankruptcy notice will not necessarily stop your creditors from seeking payment from you, but it may provide you with more time to access cash or seek alternative arrangements to pay your debts. Grant v Green & Associates Pty Ltd [2021] FCA 934 provides an example of successful invalidation of a bankruptcy notice due to an overstatement of the debt owed.

Background:

Ms Grant applied to set aside a bankruptcy notice served on her by Green & Associates Pty Ltd (Green) on the basis of three defects:

• The debt specified in the notice was overstated as it did not take into account an amount that had been paid by Ms Grant towards the judgment debt;
• The notice incorrectly specified that the debt could be paid to Ms Grant at her address rather than to Grant at its address; and
• The notice incorrectly stated that Green would accept service of legal documents at Ms Grant’s address rather than at Green’s address.

Although Green did not dispute the existence of the defects, it argued that they were formal defects which did not invalidate the notice under section 306 of the Bankruptcy Act 1966. Section 306 provides that a formal defect or irregularity will not invalidate a bankruptcy notice unless the court finds that substantial injustice has been caused by that defect or irregularity and that the injustice cannot be remedied by a court order.

The success of Green’s argument hinged on the court’s interpretation of section 41(5) of the Bankruptcy Act 1966. Section 41(5) provides that a bankruptcy notice is not invalidated merely because the debt specified is overstated unless the debtor gives notice to the creditor that they are disputing the validity of the bankruptcy notice due to the overstatement within the time fixed for compliance with the bankruptcy notice. 

The registrar in this matter had extended the initial time period for compliance with the bankruptcy notice during the ongoing proceedings. Ms Grant had only provided Green with notice during the extended period and not within the initial period provided by the bankruptcy notice. Green therefore argued that section 41(5) did not apply.

Conclusion:

The Court found that notice within the time fixed for compliance with a bankruptcy notice includes any extensions granted by the court. The bankruptcy notice was therefore invalidated as Ms Grant had provided notice to Green within time.

The application would have failed if Ms Grant had merely relied on the incorrect address defects as the court did not find that substantial injustice would be caused by those defects.

Take-aways:

Bankrupts should be aware that, if they receive a bankruptcy notice that overstates their debt, they may be able to invalidate the bankruptcy notice by providing notice to the creditor that they are disputing the validity of the bankruptcy notice due to the overstatement. Such notice must however be provided within the time fixed for compliance with the bankruptcy notice.

On the other hand, some defects are not sufficient to invalidate a bankruptcy notice unless the court is prepared to find that there will be substantial injustice cause and the court cannot otherwise remedy that injustice.

Issuers of bankruptcy notices need to ensure as far as possible they only include amounts owing at the time of the issue of the notice and account for any payments received by reducing the total claimed. 

We recommend advice be sought if you are uncertain of a basis for defending a bankruptcy notice or the amount to be sought to be paid if issuing a bankruptcy notice.

If you have any queries about any of the matters raised by this case, then please contact Alicia Hill on (03) 8540 0292 or alicia.hill@mst.com.au