Bankruptcy Information Sheet 4

Setting aside a Bankruptcy Notice

About this information sheet

This information sheet sets out general information on how to apply to the Court to set aside and/or extend time for compliance with a bankruptcy notice. A bankruptcy notice is an important document. Failure to comply with the notice or to apply to the Court to set it aside will entitle a creditor to present a creditor’s petition for an order that the debtor be made a bankrupt.

It is important to note the following information.

This information sheet is published as part of a series of information sheets and practical guides and contains links to the most commonly used forms approved or prescribed by the relevant legislation or court rules.
This information sheet contains general information only and is not a substitute for the Bankruptcy Act 1966 or the Bankruptcy Rules 2016. To the extent that there is any inconsistency or discrepancy, the Bankruptcy Act and Bankruptcy Rules as interpreted by the Courts prevail. Links to the legislation and court rules are set out below.
While Registry staff can provide practical assistance to litigants they cannot provide legal advice or assist with the content of any document. The onus is on the party presenting the petition to undertake their own enquiries and assessment of the legal issues.

References and links to legislation, court rules and approved forms:

Bankruptcy Act 1966 (the Bankruptcy Act)
Federal Court (Bankruptcy) Rules 2016 (the Bankruptcy Rules)
Bankruptcy Regulations 2021 (the Regulations)
Federal Court of Australia Act 1976 (the Court Act)
Federal Court Rules 2011 (the Court Rules)
Prescribed forms under the Regulations
Approved forms under the Bankruptcy Rules

1. Introduction

1.1 A bankruptcy notice is a formal document issued by the Official Receiver (AFSA) requiring a debtor to pay a debt. The Official Receiver may issue a bankruptcy notice on the application of a creditor if the creditor has obtained a final judgment or order against the debtor for at least $10,000 that has not been stayed and is no more than six years old.

1.2 A bankruptcy notice is given effect by serving the document on the debtor. A creditor must serve the bankruptcy notice within 6 months of the date it was issued unless AFSA has extended the life of the notice.

1.3 Once served, the terms of a bankruptcy notice require the debtor to comply with the notice within 21 days. Relevantly, the debtor may:

(a) pay the creditor the amount of the debt claimed;

(b) make arrangements to the creditor’s satisfaction for settlement of the debt; or

(c) apply to the Court to set aside the bankruptcy notice and/or extend time for compliance with the notice

1.4 If the debtor does not comply within 21 days of service of a bankruptcy notice, the debtor will commit an act of bankruptcy (see s 40(1)(g) of the Bankruptcy Act). The creditor who served the notice may then present a creditor’s petition based on the act of bankruptcy seeking an order that the debtor be made a bankrupt.

1.5 This information sheet sets out general information on a debtor’s rights to apply to the Court to set aside and/or extend time for compliance with a bankruptcy notice. The information sheet is divided into the following parts:

(a) First, the time period in which a set aside application must be brought

(b) Secondly, the grounds which may be relied on to apply to the Court to set aside a bankruptcy notice or extend time for compliance

(c) Thirdly, preparing the application

(d) Fourthly, preparing the accompanying documents, and

(e) Fifthly, the process for filing and serving the application and accompanying documents.

2. When can an application be brought?

2.1 A debtor served in Australia has 21 days from the date of service of a bankruptcy notice to apply to the Court for it to be set aside.

2.2 The Court will not have jurisdiction to set aside the bankruptcy notice or extend time for compliance if the debtor has brought the application outside of the 21 day compliance period. The only exception is where the debtor has instituted separate proceedings within the 21 day period to set aside the judgment debt on which the bankruptcy notice is founded.

2.3 Accordingly, a debtor served with a bankruptcy notice should take care to accurately identify the time period within which he or she may make an application to the Court in respect of the bankruptcy notice. This period is calculated by reference to the date the bankruptcy notice was served, which may depend on the method of service relied on by the creditor. A debtor should note the following principles which guide the Court in calculating the date of service of a bankruptcy notice:

(a) Where service is effected by hand or by delivery, the 21 day compliance period is usually calculated from the date the document was handed to the debtor or delivered.

(b) Where service is effected by ordinary pre-paid post to the debtor’s last-known address, the 21 day compliance period is, subject to the contrary being proven, usually calculated from the date the document would have been delivered in the ordinary course of post.

(c) Where service is effected pursuant to a substituted service order of the Court, the 21 day compliance period is calculated in accordance with the deemed date of service referred to in the order.

(d) Where service is effected electronically, the 21 day compliance period is usually calculated from the time of transmission rather than of actual receipt.

2.4 If a debtor has applied to the Court within time for a bankruptcy notice to be set aside, the Court may make an interim order extending the time for compliance with the bankruptcy notice pending the determination of the application. If the debtor’s application asserts a counter-claim, set off or cross demand, no order is necessary, as the time for compliance is deemed to be extended by operation of s 41(7) of the Bankruptcy Act.

3. Grounds which may be relied upon to set aside a bankruptcy notice

3.1 The general grounds on which a debtor may apply to the Court to set aside the bankruptcy notice include the following:

(a) that the debtor has applied to set aside the judgment debt the bankruptcy notice is founded on

(b) that the debtor can satisfy the Court that they have a counter-claim, set off or cross demand exceeding the amount of the judgment debt, and

(c) on the basis of 'other grounds'.

3.2 A summary of each ground is set out below.

Application to set aside a bankruptcy notice on the basis that there are proceedings to set aside the underlying judgment - ss 41(6A)(a) and 41(6C) of the Bankruptcy Act and Rule 3.02(4) of the Bankruptcy Rules

3.3 A debtor may apply for an order that the Court set aside a bankruptcy notice on the basis that the debtor has applied to set aside (or appeal) the judgment or order in respect of which a bankruptcy notice was issued. For an application under this ground to be competent, the debtor must have commenced proceedings to set-aside (or appeal) the underlying judgment. It is noted that any challenge to the underlying judgment or order is a separate application, and should be made in the Court that made the relevant judgment or order.

3.4 Where a debtor has commenced separate proceedings to set aside (or appeal) the underlying judgment, the Court has an explicit power to extend time for compliance with the bankruptcy notice under s 41(6A)(a) of the Bankruptcy Act. However, the Court will not make this order if it considers that the proceedings to set aside the judgment or order (s 41(6C) of the Bankruptcy Act):

(a) have not been instituted bona fide, or

(b) are not being prosecuted with due diligence.

3.5 There is also a broad spectrum of other matters and considerations which will ordinarily be relevant to whether the Court will exercise its power to extend time. Some of these factors include:

whether the debtor has applied for or obtained a stay on the judgment
whether the grounds on which the judgment are challenged have some sound basis or a rational chance of success
any prejudice there may be to the debtor and creditors
any impact there may be on the date of bankruptcy
any impact there may be on legal proceedings
any information relating to a debtor’s general financial position, and
the risk of assets being dissipated.

3.6 The Court will balance these considerations, having regard to the circumstances of the application, the evidence, and any legal submissions that have been made.

3.7 The forms and documents required to make an application under this ground are explained below at Sections [4] and [5], and at paragraphs [5.9]-[5.10].

Application to set aside a bankruptcy notice on the ground of a counter-claim, set-off or cross demand – s 40(1)(g) and 41(7) of the Bankruptcy Act and Rule 3.02(3) of the Bankruptcy Rules

3.8 A debtor may file an application to set aside a bankruptcy notice on the ground that they have a counter-claim, set-off or cross demand that satisfies the requirements of the Bankruptcy Act.

3.9 Under s 40(1)(g) of the Bankruptcy Act, a debtor may have a counter-claim, set-off or cross demand to the creditor’s judgment debt attached to the bankruptcy notice where:

(a) the debtor has a sufficiently arguable claim measurable in monetary terms for an amount equivalent to or exceeding the judgment debt amount;

(b) the claim is mutual as between the creditor in the notice and the debtor, and in the same right and capacity; and

(c) the claim could not have been litigated in the proceeding in which the creditor’s judgment was obtained.

3.10 A debtor must provide material evidence of their claim. The Court will not be satisfied by a mere assertion that a claim exists.

3.11 Where a competent application has been brought under this ground, there will be a deemed extension of time for compliance with the bankruptcy notice until the Court determines whether the debtor has a counter claim, set off or cross demand (s 41(7)).

3.12 If the Court decides the application in favour of the debtor, he or she will be excused from complying with the bankruptcy notice and an act of bankruptcy will be avoided.

3.13 Because this is a technical and complex area of the law, a debtor may wish to obtain advice from a qualified professional on whether they have a claim that could be set up to defeat the judgment debt referred to in bankruptcy notice.

3.14 The forms and documents required to make an application under this ground are explained below at sections [4] and [5], and at paragraph [5.11]-[5.14].

Application to set aside a bankruptcy notice on 'other grounds' - power to extend time under s 41(6A)(b) of the Bankruptcy Act

3.15 A debtor may file an application to set aside a bankruptcy notice on 'other grounds'. Some common grounds for setting aside a bankruptcy notice include that:

there was a defect or irregularity in a bankruptcy notice or its issue that is substantial and not procedural or would be objectively capable of misleading the debtor
enforcement of the judgment or order was suspended or there was a stay on the judgment at the time the bankruptcy notice was issued and/or served
the amount claimed in the bankruptcy notice is overstated
there is an error in the name of the debtor or creditor in the bankruptcy notice
the bankruptcy notice has not been completed correctly or in its entirety, and
the debtor does not owe the debt alleged in the bankruptcy notice.

3.16 The above list is not exhaustive. This is a technical and complex area of law and ideally a debtor would obtain legal advice as to what grounds may be available.

3.17 Where a debtor has brought an application asserting 'other grounds', the Court has a broad, general discretion under s 41(6A)(b) of the Bankruptcy Act to extend time for compliance with a bankruptcy notice.

3.18 The forms and documents required to make an application under this ground are explained below at sections [4] and [5], and at paragraphs [5.9]-[5.10].

4. Preparing an application to set aside and/or extend time for compliance with a bankruptcy notice

4.1 To file an application to set aside and/or extend time for compliance with a bankruptcy notice, a debtor should obtain and complete a Bankruptcy Form B2 Application.

4.2 The debtor applying to the Court for the relevant orders is referred to as the 'Applicant'. The person or entity who served the bankruptcy notice, and is named as the creditor in the bankruptcy notice, is referred to as the 'Respondent'. The debtor must complete the details of both the Applicant and Respondent in the Form B2 Application.

4.3 Under the heading 'Details of Claim', the debtor must state the final orders that they seek from the Court. In most instances, this will be an order that the relevant bankruptcy notice be set aside. The debtor should specify the number of the bankruptcy notice and the date on which the bankruptcy notice was served, together with the grounds relied on. For example, a debtor may state their claim in these terms:

That Bankruptcy Notice Number BN [insert] issued on [insert] which was served on me on [insert] be set aside on the following grounds: [insert].

4.4 In identifying the grounds relied on, the applicant should note the following:

(a) where the bankruptcy notice is to be set aside on the grounds of set aside or appeal of the judgment debt, the applicant should state so

(b) where the ground is in the nature of a counter claim, set off or cross demand, the applicant should state a general description of the claim, and

(c) where 'other grounds' are relied on, the applicant should specifically identify the nature of the 'other grounds' and state this in summary form.

4.5 Under the heading 'Claim for Interim Relief', the debtor must state any interim orders they seek from the Court. If the debtor is seeking an order extending time for compliance with the bankruptcy notice until the application to set aside is heard, that order should be stated in this section. For example, an Applicant may claim interim relief in these terms:

That time for compliance with Bankruptcy Notice Number BN [insert] issued on [insert] which was served on me on [insert] be extended up to and including [insert].

4.6 Where such interim relief is sought, the Applicant should also state the legislative basis of the Court’s jurisdiction to make an order extending time for compliance with the bankruptcy notice. For example:

where the extension is sought on the basis that proceedings have been commenced to set aside or appeal the judgment attached to the notice, the debtor should ask for time to be extended under s 41(6A)(a) of the Bankruptcy Act, and
where an extension is sought on the basis that the bankruptcy notice be set aside on 'other grounds', the debtor should ask for time to be extended under s 41(6A)(b) of the Bankruptcy Act.

Note that time is extended by s 41(7) of the Bankruptcy Act where the debtor has a counter claim, set off or cross demand; (see paragraph [3.11] of this document).

4.7 The usual practice is for a debtor to seek orders under both 'Details of Claim' and 'Claim for Interim Relief'.

4.8 The balance of the Form B2 must be completed in full, signed and dated. The form does not need to be witnessed. The debtor should also insert at the footer of the form their contact details, including (where available) an email address for service where documents in the proceedings can be posted, delivered or transmitted.

5. Documents which should accompany the application

5.1 An application to set aside a bankruptcy notice and/or extend time for compliance must be accompanied by a supporting affidavit providing evidence of matters relevant to the particular ground/s relied on.

5.2 An affidavit is a written form of evidence either sworn or affirmed before a solicitor, Justice of the Peace, Commissioner for Declarations or other authorised person. An affidavit must be divided into numbered paragraphs and must be signed on each page. Any document relevant to the matter may be annexed to the affidavit. Each document that is annexed must have an annexure certificate signed by the person before whom the affidavit is made identifying it as the particular annexure.

5.3 Formal requirements for documents filed in bankruptcy proceedings in the Federal Court are set out in Rule 1.07(5) and Form B1 of the Bankruptcy Rules and Rules 2.11 to 2.16 of the Court Rules 2011. Formal requirements for affidavits filed in the Court are set out in Rules 29.01 to 29.03 of the Court Rules 2011 but modified to include the heading in approved Form B1 prescribed by rule 1.07(5). For forms used in bankruptcy proceedings in the Court, refer to the Bankruptcy Forms.

General requirements for the accompanying affidavit

5.4 Where an applicant seeks orders setting aside a bankruptcy notice or extending time within which to comply with the notice, rules 3.01, 3.02 and 3.03 of the Bankruptcy Rules require that the application be accompanied by an affidavit:

(a) stating the grounds in support of the application

(b) stating the date when the bankruptcy notice was served on the applicant, and

(c) attaching a copy of the bankruptcy notice.

5.5 The applicant should ensure that the grounds relied on are carefully articulated in the accompanying affidavit.

5.6 The applicant should also ensure that the accompanying affidavit contains material evidence to support the ground or grounds relied on. The Court will not be satisfied by a mere assertion that a ground exists.

5.7 Further to these general requirements, rules 3.01, 3.02 and 3.03 also set out the specific requirements for the accompanying affidavit depending on the nature of the grounds asserted. There requirements are considered below.

Application for extension of time on the basis of proceedings to set aside the underlying judgment – r 3.02(4) of the Bankruptcy Rules

5.8 Where the debtor is asking for orders on the basis that proceedings have been instituted to set aside the judgment underlying a bankruptcy notice, the accompanying affidavit must also:

(a) attach a copy of the application to set aside the judgment, and

(b) any material in support of that application.

5.9 The affidavit material must show that the set aside or appeal proceedings have been commenced and the case has raised genuine and arguable grounds which has sufficient prospects of success.

Application for set aside on 'other grounds' – r 3.02 of the Bankruptcy Rules

5.10 Where the debtor is asking for orders on the basis that the bankruptcy notice be set aside on 'other grounds', the accompanying affidavit must articulate the nature of the 'other grounds' and include any evidence the debtor intends to rely on. Some of the common grounds raised are canvassed at paragraph [3.15] above.

Application for set aside on the basis of a cross claim, set off or cross demand – r 3.02(3) of the Bankruptcy Rules

5.11 Where the debtor is asking for the bankruptcy notice to be set aside on the basis of a cross claim, set off or cross demand, the accompanying affidavit must state (see r 3.02(3) of the Bankruptcy Rules):

(a) the full details of the counter claim, set off or cross demand

(b) the amount of the counter claim, set off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice, and

(c) why the counter claim, set off or cross demand was not raised in the proceedings that resulted in the judgments or orders to which the bankruptcy notice relates.

5.12 The affidavit must also provide material evidence in support of the asserted cross claim, set off or cross demand. The Court will not be satisfied by a mere assertion that such a claim exists. The debtor must be able to demonstrate that the claim is mutual and in the same right as between the debtor and creditor named in the notice and that the claim is one that is presently available; a contingent or inchoate claim which is not payable immediately or at a certain future time will not be sufficient.

5.13 Critically, the amount of the asserted cross claim must equal or exceed the judgment debt.

5.14 Furthermore, the cross-claim, set-off or cross demand must be one which could not have been set up in the proceeding that resulted in the judgment to which the bankruptcy notice relates. Therefore, the affidavit must explain why the debtor could not raise the counter-claim, set-off or cross demand in the proceeding resulting in the judgment on which the bankruptcy notice is based.

6. Filing and serving documents

6.1 The application and accompanying affidavit must be filed in the Federal Court of Australia.

6.2 An application lodged after 4.30 pm on the final day for compliance with the bankruptcy notice will be outside of time and incompetent.

6.3 The applicant may lodge all required documents electronically through the Court’s eLodgment facility. For more information on eLodgment and the Court’s Online Services, refer to Section [9] of this information sheet.

6.4 If the documents lodged are in the correct form they will be accepted for filing and processed. The documents will be endorsed by the Court and the application given a hearing date. Through eLodgment, an applicant can access the endorsed versions of the documents, which can be printed or emailed for the purposes of service.

Filing fee

6.5 A fee is payable for filing an application to set aside a bankruptcy notice.

6.6 If an applicant cannot afford this fee, they may be able to ask the Court to exempt them from having to pay it, or to defer the time for its payment. Information and the form to be used to request the Court to either exempt or defer payment can be obtained from the Registry or found in Court Fees.

Hearing date

6.7 Upon receiving sealed copies of the documents from the Registry, the applicant should refer to the cover page of the application, which provides a time, date and place for the first court date. The applicant can also check when the matter is listed by using Federal Law Search, which is accessed through the Court’s website.

6.8 If the applicant fails to attend court at the time specified, the Court may make orders in their absence, including an order that the application be dismissed.

Service

6.9 Within 3 days of filing the application, the Applicant must serve a copy of the sealed documents on the Respondent at the address for service stated on the bankruptcy notice (r 3.02(5) of the Bankruptcy Rules).

7. Hearing of the application

7.1 The application to set aside the bankruptcy will be given a hearing date, time and place which can be found on the cover page of the application. It is critical that the debtor attend the hearing otherwise the Court will dismiss the application and also make a cost order in favour of the creditor. If the proceedings are dismissed, the creditor may immediately file/ present a petition for a sequestration order that the debtor be made bankrupt.

7.2 The creditor who issued the bankruptcy notice may wish to oppose the debtor’s application. If so, the creditor will be required to file a notice stating grounds of opposition to the application. The creditor may also be required to file and serve evidence in support of its grounds of opposition.

7.3 At the hearing of the matter, the Court will consider the debtor’s application having regard to all relevant evidence and submissions before it.

7.4 The Court may make orders that:

set aside the bankruptcy notice,
extend time for compliance with the bankruptcy notice until an adjourned date, or
dismiss the application.

7.5 If the Court sets aside the bankruptcy notice, there will be no act of bankruptcy that could support filing a creditor’s petition for a sequestration order bankrupting the debtor. But depending on the reasons for setting aside the bankruptcy notice, the creditor may seek to enforce the debt in another way or to issue a fresh bankruptcy notice.

7.6 If the Court is persuaded to adjourn the application, it will also generally extend the time within which a debtor has to comply with the bankruptcy notice unless there is a deemed extension time where a counterclaim, cross demand or set off is raised.

7.7 If the Court dismisses the application, the debtor will commit an act of bankruptcy and the creditor may commence separate proceedings by way of a petition applying for a sequestration order bankrupting the debtor.

7.8 The Court’s orders will be sealed electronically and made available online via the Commonwealth Courts Portal within 24 hours.

8. Related materials

8.1 Debtors are also referred to the following related material:

Guide for Practitioners and Parties in Bankruptcy Matters listed before a Judicial Registrar
Bankruptcy Information Sheet 1: Presenting a Creditor's Petition
Bankruptcy Information Sheet 2: Creditor's Petition Checklist
Bankruptcy Information Sheet 3: Opposing a Creditor's Petition
Bankruptcy Information Sheet 5: Substituted Service Applications
Bankruptcy Information Sheet 6: Consequences of a Sequestration Order

9. Other resources

9.1 Debtors who are self-represented litigants will be supported by the Registry to assist them through the court process efficiently. Refer to Information for Litigants for further information.

9.2 A self-representation service is available to litigants in each Registry. The service provides free, confidential and impartial legal advice and assistance with Federal Court and Federal Circuit and Family Court proceedings for individuals and community groups. For further details contact the nearest Registry.

9.3 In addition, debtors can also approach various ‘not for profit’ bodies for assistance and guidance and access free online information on bankruptcy and opposing a Creditor’s Petition including:

LawRight (Queensland)
Justice Connect
Financial Rights Legal Centre
Australian Financial Security Authority (AFSA)

10. Information on the Court’s online services

eLodgment

10.1 The Court provides an electronic lodgment (eLodgment) facility through which a document that commences a proceeding or is relevant to an existing proceeding may be lodged for filing online.

10.2 The use of eLodgment provides many benefits to court users. It is available from each user’s computer at any time and provides a complete record of all lodgement transactions with the Court.

10.3 eLodgment also allows court users to lodge other documents regarding a proceeding, for example: a draft order, terms of consent and case management correspondence.

10.4 A party must be registered to use eLodgment. The eLodgment page includes information about registering, preparing and lodging documents.

eCourtroom

10.5 eCourtroom is a virtual courtroom that assists in the management of matters by allowing directions and final orders to be made online.

10.6 Once lodged, applications will be given a return date with the location as 'eCourtroom'. Practitioners must ensure that when an application is lodged, the full name and email address of the practitioner who will be conducting the eCourtroom hearing is provided at the foot of the first page of the application. More than one practitioner’s name and email address may be provided.

10.7 For each application, practitioners will receive a further email notifying them that the particular matter has been set up in eCourtroom. The Judicial Registrar allocated to deal with the matter will then communicate with each practitioner.

10.8 Before or on the eCourtroom return date the Judicial Registrar will:

(a) consider the filed evidence, any communications and the draft orders forwarded by the applicant, and

(b) make appropriate orders, notify parties (or the applicant in ex parte matters) and provide a sealed copy of the order.

Commonwealth Courts Portal

10.9 Filed documents in a matter can be viewed by parties or those authorised by a party on the Commonwealth Courts Portal. The Commonwealth Courts Portal (CCP) provides web-based services for court users to access information about cases before the Court. Parties may register for the CCP to gain access to documents which have been eLodged, as well as orders of the Court, judgments and listing events (past or future). More information about the CCP can be found in Online Services.

Federal Law Search

10.10 Alternatively, stamped court orders are also available online via Federal Law Search. The Federal Law Search facility provides selected information on cases to members of the public.

Updated July 2022

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