A day late, a cent short. How strict is the requirement to comply with a bankruptcy notice?

The Federal Circuit Court of Australia was recently asked to consider whether short payment of the amount claimed in a bankruptcy notice of $0.01 was enough to constitute a failure to comply with the notice. This was in the context of whether a sequestration order ought to be made against the respondent on grounds that she committed an act of bankruptcy by failing to comply with the notice.

The applicant, The Owners – Strata Plan No 18027, argued that the requirement to comply with a bankruptcy notice must be construed strictly, such that a failure to pay $0.01 cent of the amount claimed constitutes a failure to comply with the notice.

The court found that although the Bankruptcy Act requires a debtor to strictly comply with a bankruptcy notice in order to avoid committing an act of bankruptcy, this does not mean that absolute precision is required. For instance, the bankruptcy notice might still be strictly complied with where a debtor intended to comply but for making a small monetary error when making payment.

In this case, the court accepted that the respondent genuinely thought that the full amount had been paid, notwithstanding she short paid it by $0.01. As a result, it was found that the respondent had complied with the bankruptcy notice.  As a result, the petition was dismissed.

The lesson for creditors is that caution must be exercised when a debtor short pays an amount claimed in a bankruptcy notice.

The lesson for debtors is that although the court may grant some leeway in circumstances where there are small monetary errors made when making payment, bankruptcy notices must be strictly complied with. Further, on a practical level, the respondent in this case could have saved herself a lot of time and expense had she simply paid the correct amount claimed in the bankruptcy notice.

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