Federal Court of Australia

Maloney v CharterLaw Legal Pty Limited [2026] FCA 1450

ORDERS

THE COURT ORDERS THAT:

1.    The time for compliance with the Bankruptcy Notice BN 285907 be extended until the end of 6 October 2026.

2.    Bankruptcy Notice BN 285907 be set aside.

3.    The respondent pay the applicant’s costs of the proceeding to set aside the bankruptcy notice as taxed, assessed or otherwise agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PERRAM J:

1    This matter came before me on Monday 28 September 2026 as duty judge and had to be determined prior to Wednesday 30 September 2026 for reasons relating to the operation of the Bankruptcy Act 1966 (Cth) (‘the Act’).

2    The respondent is the former legal representative of the applicant. The respondent obtained judgment against the applicant in the District Court of New South Wales in the sum of $121,748.58 on 23 February 2026. The judgment was entered after the presentation by the respondent of costs assessor’s certificates following a contested assessment process running from February 2025 to February 2026. On 6 March 2026, the respondent procured the issue of a bankruptcy notice dated that day and numbered BN285907. On 9 March 2026, the respondent sent a copy of the bankruptcy notice by email to the solicitors who had acted for the applicant in the costs assessment process. There is an issue as to whether this constituted service of the notice on the applicant, but it is not in dispute that the notice came to her attention. If it was validly served, it required the applicant to pay the amount demanded within 21 days of service, i.e., by 30 March 2026.

3    On 25 March 2026, the applicant filed an application in this Court seeking orders setting aside the bankruptcy notice. The application was supported by an affidavit of the applicant sworn on the same day. The affidavit was brief but did say that the applicant applied to set aside the bankruptcy notice on the basis that she was going to apply to set aside the judgment debt. She also said that there were irregularities in relation to the judgment sum and that she had ‘an action for damages against CLL’ although no details of what constituted that action were given. Despite that, the affidavit did not explicitly include as a ground for setting aside the notice any contention that she had a counter-claim, set-off or cross demand under s 40(1)(g) of the Act. On the present application, the applicant did not submit that the application as filed contained such a ground.

4    Where an application to set aside the notice on the ground referred to in s 40(1)(g) is made before the time for compliance with a bankruptcy notice, s 41(7) provides for an automatic extension of time for compliance with the notice until the Court determines whether it is satisfied that there is such a counter-claim, set-off or cross demand. Where, on the other hand, no such ground is asserted in an application filed before the time for compliance, the Court has a power to extend the time for compliance in s 41(6A):

(6A)     Where, before the expiration of the time fixed for compliance with a bankruptcy notice:

(a)     proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or

(b)     an application has been made to the Court to set aside the bankruptcy notice;

the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.

5    This provision has two alternative limbs. The first limb will be enlivened where an application to set aside the judgment debt is made before the time for compliance with the bankruptcy notice. Although an application was eventually made by the applicant to set aside the District Court judgment on 15 June 2026, this did not occur prior to 30 March 2026 so the first limb in s 41(6A)(a) is not enlivened. However, where an application to set aside a bankruptcy notice is made within the time for compliance, the second limb in s 41(6A)(b) permits the Court to extend the time for compliance.

6    The power to set aside a bankruptcy notice is not expressly conferred by the Act or the Federal Court (Bankruptcy) Rules 2016 (Cth). However, it has been held that the power conferred on the Court by s 30(1)(b) of the Act to make such orders ‘as the Court considers necessary for the purposes of carrying out or giving effect to this Act’ is sufficiently wide to supply the power to set aside a bankruptcy notice: Re Sterling; ex parte Esanda Ltd [1980] FCA 61; 44 FLR 125 at 130 per Lockhart J (‘Sterling’).

7    Once a debtor fails to make the payment demanded by a bankruptcy notice based on a judgment debt within the time specified for compliance, the debtor commits an act of bankruptcy: s 40(1)(g). Once an act of bankruptcy occurs, the Court has no power to annul that act of bankruptcy, even if the judgment underlying the bankruptcy notice is subsequently set aside: Re Vella; ex parte Seymour (1983) 67 FLR 287 at 290 per Morling J (‘Vella’). For this reason, it has been held that extending the time for compliance with a bankruptcy notice after the debtor has failed to comply with it within the time specified in the notice does not annul the act of bankruptcy: Vella at 291-292.

8    However, despite that general principle, it is established the extension power conferred by s 41(6A) may be exercised even after the time for compliance with the notice has passed and, therefore, after an act of bankruptcy has been committed: Streimer v Tamas (1981) 54 FLR 253 at 257–259 per Deane and Ellicott JJ (‘Streimer’). Their Honours reasoned that s 41(6A) meant what it said. Sheppard J, in dissent, reached the contrary conclusion (at 266) on the basis that the Court had no power to annul an act of bankruptcy which had occurred.

9    The application to set aside the bankruptcy notice came before a Judicial Registrar on 21 April 2026 for mention. At that time, the respondent observed that an act of bankruptcy had already occurred, and the Judicial Registrar noted that no order had been made extending the time for compliance. The applicant did not seek at the hearing on 21 April 2026 to extend the time for compliance with the bankruptcy notice. A timetable for evidence was put in place, and the matter was adjourned for hearing to 19 May 2026. The day before the hearing, the applicant applied for an adjournment and on 19 May 2026 that adjournment appears to have been granted with the matter then being referred to a judge for hearing. On 10 June 2026, the matter came before Markovic J who directed the applicant to file and serve any further evidence by 15 June 2026 and otherwise stood the matter over for further directions on 17 June 2026.

10    On 12 June 2026, the applicant applied to review the costs certificates upon which the District Court judgment was based and on 15 June 2026, having done so, she applied to the District Court to set aside the judgment on which the bankruptcy notice was based. When the matter returned before Markovic J on 17 June 2026 her Honour granted the applicant leave to amend her application to set aside the bankruptcy notice. On 29 June 2026, the applicant filed an amended application seeking the setting aside of the notice on three grounds:

(a)    she had filed an application to set aside the judgment;

(b)    she had a counter-claim, set-off or cross demand against the judgment creditor; and

(c)    the bankruptcy notice had not been validly served upon her.

11    At the present hearing the applicant did not submit that these amendments dated from the original filing date of 25 March 2026; cf the rule in Weldon v Neal (1887) 19 QBD 394. Hence, there is no need to consider whether the granting of the amendment in relation to the counter-claim, set-off or cross demand automatically extended the time for compliance under s 41(7).

12    The matter was then adjourned on a few occasions to permit the application to the District Court to be pursued. On 12 August 2026, the District Court set aside the judgment. The respondent then filed an application for leave to appeal with the NSW Court of Appeal which is to be heard on 17 November 2026. An application by the respondent in the Court of Appeal to stay the orders of the District Court setting aside the judgment was unsuccessful. Thereafter more timetabling orders were made, so that further evidence could be filed in this Court.

13    The effect of s 44(1)(c) is that any petition based on the failure to comply with the notice must be commenced within six months of the act of bankruptcy which occurred on 30 March 2026. In this case this means that any petition must be filed by Wednesday 30 September 2026. There is no facility to extend that date. Markovic J being on leave, the matter was fixed before me as duty judge for hearing on Monday 28 September 2026.

14    The applicant submits that the Court has power under s 41(6A)(b) to extend the time for compliance with the bankruptcy notice notwithstanding that an act of bankruptcy has already occurred. The respondent accepts that this is so. If the power is exercised, then it will follow that ‘the contingency’ to which the bankruptcy notice was always subject will have come to pass and there will never have been an act of bankruptcy. The language of ‘contingency’ comes from the joint reasons of Deane and Ellicott JJ in Streimer at 258 and formed part of their Honours’ explanation for why an extension under s 41(6A) did not retrospectively operate so as to divest the creditor of the benefit of the act of bankruptcy or to annul the act of bankruptcy. Rather, the effect of an order extending the time for compliance ‘will be to enlarge the overall time allowed for compliance with the result that what would otherwise have constituted an act of bankruptcy no longer does’: Streimer at 258. Put another way, the effect of s 41(6A) is that every act of bankruptcy based on a failure to comply with a bankruptcy notice is, in its nature, inherently defeasible under s 41(6A).

15    What is involved in the present case is therefore the exercise of the statutory discretion conferred by s 41(6A). As Lockhart J explained in Sterling at 129–130:

Notwithstanding that the filing of the application to set aside the bankruptcy notice within the specified time is a condition precedent to the exercise of the court's power to extend time, and is perhaps a ground for granting the extension, in truth the power to extend time is in aid of the setting aside of the notice itself. Unless the court is to hear the application to set aside the notice, there is no purpose to be served in having power to extend time for compliance with the requirements of the notice.

16    The objective therefore of s 41(6A) is to permit the debtor to apply to set aside the bankruptcy notice. It does so by permitting the debtor’s position to be preserved while an application to set aside the judgment upon which the notice is based is pursued in the other court. Where the judgment has in fact been set aside it would be surprising if the power were not, at least in most cases, exercised to extend the time for compliance with the bankruptcy notice to the time at which the Court determines the application to set aside the bankruptcy notice. This is because it is difficult to see how the interests of justice would be served by allowing an act of bankruptcy to occur when the bankruptcy notice is based on a judgment debt which no longer exists and where s 41(6A) has been held explicitly to authorise an extension of time notwithstanding that an act of bankruptcy has already occurred.

17    There will be cases when the power in s 41(6A) should not be exercised. In Streimer Deane and Ellicott JJ explained at 258–259:

It is true that to give, as we would, to the words which the Parliament has used their plain and full meaning may be productive of a degree of uncertainty and inconvenience in practice. If proceedings to set aside the relevant judgment or order have been instituted or an application to set aside the bankruptcy notice has been filed within the time limited for compliance with the requirements of the bankruptcy notice, there may remain doubt as to whether a subsequently granted extension of time will preclude a previous period of noncompliance, which has expired without extension, from constituting an act of bankruptcy. The creditor would, however, ordinarily be aware that proceedings to set the judgment aside had been instituted or that an application to set aside the bankruptcy notice had been filed. He would therefore be on notice that the time for compliance might be extended. In any event, any detriment suffered as a result of such uncertainty or inconvenience would be relevant on an application to extend time for compliance and may be a factor militating against the making of an order extending time. Clearly, any prudent practitioner will continue to observe the present practice of endeavouring to ensure that the original or extended time for compliance is not allowed to expire without an extension or further extension being obtained. One would hope that the circumstances where time was allowed to expire before an application to extend, or further to extend, time was made or dealt with, would be restricted to cases resulting from ignorance on the part of a debtor acting in person, inadvertence on the part of a debtor's legal representative or, conceivably, temporary unavailability of the judge or Registrar of a court entrusted with the exercise of bankruptcy jurisdiction.

18    In this case, it is apparent that the applicant’s former legal representatives who filed the application to set aside the bankruptcy notice overlooked the necessity of applying to the duty Registrar for an order extending the time for compliance with the notice to the time that the application to set aside the notice was to be determined. The respondent correctly pointed out at the first mention before the Judicial Registrar that the applicant’s failure to do so entailed that an act of bankruptcy had already been committed. Further, it is true that thereafter the applicant and her advisors did not seek to extend time. Indeed, it was not until 15 June 2026 that the applicant finally applied to the District Court to set aside the judgment. After that date, the parties proceeded on the basis that the matter in this Court should be held in abeyance until that application was determined. Once the judgment was set aside, there was then some further delay whilst the respondent unsuccessfully sought interim relief from the Court of Appeal.

19    I would accept that there has been delay on the part of the applicant at least for the period between 25 March 2026 and 15 June 2026, a period of about 11½ weeks. This is significant and is relevant to the exercise of the discretion conferred by s 41(6A). On the other hand, as I have explained, permitting an act of bankruptcy to stand where the judgment debt on which it rests has been set aside, strikes me as potentially unjust. Whilst the general principle that an act of bankruptcy may not be annulled is, no doubt, correct, the effect of s 41(6A) is to carve the present application out from that principle as Streimer binds me to conclude. Once the power to extend the period for compliance is admitted to be that ample, that injustice is a matter which is relevant to the exercise of the discretion.

20    The respondent raised a number of discretionary matters which it said meant that no extension should be granted.

21    The first matter was that the extension application served no legitimate purpose. There was no point extending the time to permit the application in the District Court to be pursued because it had already been pursued, and there was no suggestion that the extension would serve the purpose of allowing the applicant to comply with the notice. In those circumstances, the respondent submitted the sole purpose of the application was to defeat the act of bankruptcy, which was not a legitimate purpose. However, as Lockhart J observed in Sterling the power in s 41(6A) ‘is in aid of the setting aside of the notice itself” (p 129); that is to say, the central aim of the provision is not to permit the making of the application to the other court or to enable compliance with the notice, but rather to facilitate the setting aside of the notice to which the application to the other court is but ancillary.

22    The second matter was that extending time now would, in effect, annul the act of bankruptcy which had already occurred. The respondent accepted that the power in s 41(6A)(b) was enlivened in this case, but submitted that since the Act provides no ability to annul an act of bankruptcy that has already occurred, the discretion in s 41(6A) should not be used ‘indirectly’ to permit this to occur. However, as Streimer shows, this is precisely what s 41(6A) does and cases such as Vella are inapposite.

23    The third matter concerned delay. As I have accepted above, there has been a substantial delay in this case.

24    The fourth matter was s 41(6C). It provides:

(6C)     Where:

(a)     a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and

(b)     the Court is of the opinion that the proceedings to set aside the judgment or order:

 (i)     have not been instituted bona fide; or

 (ii)     are not being prosecuted with due diligence;

the Court shall not extend the time for compliance with the bankruptcy notice.

25    This provision does not directly apply. At the time the application was filed, no application to set aside the District Court judgment had been filed. Thus, s 41(6C) is not in terms enlivened. However, on 15 June 2026 such an application was instituted. The respondent’s submission was that since the extension application has, at its heart, an application to set aside the judgment, the requirements in s 41(6C)(b)(i) and (ii) that the proceedings be bona fide and be prosecuted with due diligence, should inform the exercise of the discretion under s 41(6A). Assuming without deciding that this is correct, I do not think that it can be said that the application to set aside the judgment debt was not instituted bona fide in circumstances where it has succeeded. As to prosecution with due diligence, the application to set aside the judgment was commenced on 15 June 2026 and determined by the District Court on 12 August 2026. This does not bespeak an absence of due diligence.

26    The fifth matter was that the application to set aside the District Court judgment was only filed after the act of bankruptcy. This is true and is to be taken into account.

27    The sixth matter was that the District Court’s orders setting aside the judgment were under appeal. This is also true. Without entering into the merits of the appeal, it is difficult to see how this bears upon whether the time for compliance with the notice should be extended.

28    The seventh matter was that an act of bankruptcy was less significant for the applicant than a sequestration order. I accept that this is so.

29    The eighth matter was the interests of creditors. The respondent pointed to a claim against the applicant by Rite Constructions Pty Ltd for $766,251.75 and it submitted that it (the respondent) remained a creditor in relation to its assessed costs, as did the respondent’s present legal representatives, CharterLaw Pty Ltd. The point of these observations was that under s 115 of the Act any bankruptcy would relate back to the earliest act of bankruptcy. That is presently 30 March 2026. If the notice were set aside then this would mean that any future bankruptcy would date from a later period. No doubt, this is true. Various causes of action vested in a trustee in bankruptcy are conditioned on transactions occurring within a period before the commencement of a bankruptcy. For example, undervalued transactions occurring in the five years before a bankruptcy may be the subject of a claim (s 120 of the Act) and preference claims may be made in relation to transactions which occur within the six months before the bankruptcy (s 122). This species of prejudice is contingent on the occurrence of activity which would enliven proceedings of this kind. Whilst I accept that the effect the respondent points out is real, it is difficult to gauge how serious it is without some intimation that the applicant is engaging (or has engaged) in conduct of the kind that would enliven such claims. It would be, I accept, difficult for the respondent to show this on an application such as the present. In the circumstances, I think this is a matter which should be taken into account although given the uncertainty attending it, I do not propose to give it great weight.

30    The ninth matter was the merits. Here the respondent submitted that the judgment debt had only been set aside because it had been entered irregularly. The costs assessments remained in place. This is true but review applications have been filed. It is likely, I think, that either the current certificates or new certificates will be presented for registration and at that time a fresh judgment debt will come into existence. However, I do not see that this bears upon whether time should be extended to permit the applicant to set aside a bankruptcy notice based on a judgment which no longer exists.

31    The tenth matter was that the respondent would suffer prejudice if the notice was set aside but the applicant would not, so that the question of prejudice was said to be one-sided. Here the point was that the applicant would be entitled to raise on the hearing of any petition that the judgment had been set aside. On the other hand, if the Court of Appeal restored the judgment then the bankruptcy notice would not be restored and a fresh notice would need to be issued. I do not think that being put in the position of committing an act of bankruptcy constitutes a position of no prejudice. I accept that the respondent would lose the benefit of the bankruptcy notice if the Court of Appeal restores the judgment. I do not accept the respondent’s submission that the prejudice is one-sided. Both sides suffer prejudice.

32    Taking these matters into account, the application for an extension of time should be granted. The applicant submitted that the time to comply with the notice should be extended to 7 days after the determination of the amended application. I agree. The time to comply should be extended to 6 October 2026. Once that conclusion is reached, it is evident, since the judgment has been set aside, that the bankruptcy notice should be set aside. In those circumstances, it is not necessary to deal with the applicant’s submission that she was not validly served with the notice under s 102 of the Bankruptcy Regulations 2021 (Cth) or her submission that she has a counter-claim, set-off or cross demand under s 40(1)(g) of the Act. There is no reason costs should not follow the event.

33    For those reasons, on 29 September 2026 I made the following orders:

(1)    The time for compliance with the Bankruptcy Notice BN285907 be extended until the end of 6 October 2026.

(2)    Bankruptcy Notice BN285907 be set aside.

(3)    The respondent pay the applicant’s costs of the proceeding to set aside the bankruptcy notice as taxed, assessed or otherwise agreed.

34    As a final matter, the bundle of authorities provided to the Court in this matter appears, from a note at the bottom of each page, to have been prepared with a tool called ‘Barrister AI’. In this bundle, the AI program appears to have pulled judgment text from online sources and reformatted it, rather than directly reproducing reported or court-published unreported copies of the judgments. This process seems to have introduced some errors which make the document less usable, including at least the following:

    quoted passages and legislation are excluded from the reproduction of several of the judgments’ text;

    the reformatted headnote of one judgment notes that a decision was made by a different judge than was in fact the case (the correct judge was noted in the ‘reasons’ section);

    in some judgments, footnote, page, or paragraph numbering is incorrect or stops entirely part-way through reasons;

    in one judgment (De Robillard v Carver [2007] FCAFC 73; 159 FCR 38), the reasons of Moore and Conti JJ are excluded entirely and the reasons of Buchanan J are reduced to only headings and judgment passages, legislation, and sections of transcript that his Honour quoted.

35    While AI can be a useful tool and the creation of documents such as bundles of authorities may well be an appropriate use of AI for Court purposes, practitioners should take care to ensure the content produced is accurate.

Associate:

Dated:    1 October 2026