What Causes a Successful Invalidation of a Bankruptcy Notice? A Case Analysis on Defective Bankruptcy Notices

What is a Bankruptcy Notice?

Pursuant to section 41 of the Bankruptcy Act 1966 (Cth) (the Act), a bankruptcy notice is a formal notice of demand that requires a debtor to pay a judgement debt to a creditor. While invalidating a bankruptcy notice may not stop creditors from pursuing a judgement debt, it may provide time for the debtor to acquire more funds or seek alternative pay arrangements. The case of Grant v Green & Associates Pty Ltd [2021] FCA 934 (Grant v Green & Associates) provides an example of a successful invalidation of a bankruptcy notice.

 

Case Analysis: Grant v Green & Associates Pty Ltd

Facts

Green & Associates (G&A) served a bankruptcy notice (the Notice) on Ms Nerez Grant (Grant) on 13 May 2021 for $27,802.87. The Notice required her to pay or make alternative arrangements to pay within 21 days, however the Notice contained 3 significant errors:

1. The debt amount was overstated as it failed to take into account that Grant has already made contributions towards the judgement debt. More specifically, her total contributions through a garnishee order made by the Local Court for (totalling $1,113.29) should have been deducted from her debt;
2. The specified address to make payment was Grant’s personal address than the creditor’s address; and
3. The address issue was repeated in the the Notice, which specified the wrong address for the service of documents.

Infringed Legislation

Section 41(5) of the Act 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 dispute the validity of the bankruptcy notice due to the overstatement within the time fixed for compliance with the bankruptcy notice.

Arguments

G&A submitted that Grant did not comply with the legislation because she failed to serve the affidavit within the initial 21 days as specified in the Bankruptcy Notice. However, Grant argued that she served G&A within the extended timeframe granted by the courts. She also suggested that G&A knew that the debt listed on the bankruptcy notice was incorrect.

Decision

Wigney J held that due to the overstatement of the debt, the notice should be set aside. On the second issue of serving the documents, the time frame would encompass any extensions that had been granted by the court. Lastly, regarding the address error issue, Wigney J stated that it was unlikely to cause substantial injustice and Grant would have been able to easily rectify this error.

 

Takeaways

Overall, this case acts as a reminder to take into account garnishee orders or any other partial payment of a debt when issuing a bankruptcy notice. Additionally, it conveys the importance of checking for basic administrative errors such as correct addresses, however this alone would not cause the invalidation of a bankruptcy notice.

 

*This article was prepared with the assistance of Annabel Randall