Background
CharterLaw Legal Pty Limited, Diane Maloney’s former legal representative, obtained a District Court of New South Wales judgment against her for $121,748.58 based on costs assessor’s certificates. CharterLaw then issued a bankruptcy notice requiring payment by 30 March 2026. Maloney applied to set aside the notice before that deadline but did not seek an extension of time for compliance, and her original application did not assert a counterclaim, set-off or cross-demand that would have triggered an automatic extension.
Maloney later applied to set aside the District Court judgment, which was vacated on 12 August 2026. CharterLaw sought leave to appeal that ruling, but its application to stay the District Court’s orders was unsuccessful. Because failure to comply with the bankruptcy notice had ostensibly produced an act of bankruptcy on 30 March, Maloney asked the Federal Court to extend the compliance period retrospectively and set aside the notice.
The Court’s Holding
Justice Perram extended the time for compliance to 6 October 2026 and set aside the bankruptcy notice, with CharterLaw ordered to pay Maloney’s costs. Section 41(6A)(b) of the Bankruptcy Act 1966 (Cth) permitted an extension because Maloney had applied to set aside the notice within the original compliance period. Binding authority established that the discretion could be exercised even after that period expired and an apparent act of bankruptcy occurred; the extension enlarged the overall compliance period so that the earlier noncompliance no longer constituted an act of bankruptcy.
Although Maloney and her advisers had delayed substantially in seeking an extension and in commencing the District Court proceeding, the Court considered it potentially unjust to preserve an act of bankruptcy founded on a judgment that no longer existed. CharterLaw’s asserted prejudice, including the possible loss of an earlier relation-back date and the need to issue a new notice if the judgment were restored on appeal, did not outweigh that concern. The Court therefore did not decide Maloney’s alternative arguments concerning service or an alleged counterclaim, set-off or cross-demand.
Key Takeaways
- A court may extend the time for compliance with a bankruptcy notice under s 41(6A) even after the original deadline has passed and an apparent act of bankruptcy has occurred.
- Debtors and practitioners should seek an extension promptly; delay remains relevant to the discretionary decision even when the underlying judgment is later set aside.
- Practitioners using AI-generated court materials must independently verify them: the authorities bundle in this case contained omissions, incorrect attribution and defective numbering.
Why It Matters
The decision confirms that an act of bankruptcy arising from noncompliance with a notice is defeasible where a timely application to set aside the notice permits a later extension under s 41(6A). The provision can prevent bankruptcy consequences from continuing when the judgment supporting the notice has ceased to exist, although relief remains discretionary.
The judgment also delivers a practical warning about AI-assisted litigation materials. AI may appropriately help prepare authorities bundles, but lawyers remain responsible for checking reproduced judgments, quotations, attribution and numbering against reliable reported or court-published sources.