Can a creditor with a debt which would not be provable in a bankruptcy nonetheless present a creditor’s petition based on a failure to pay that non-provable debt?
The Federal Court of Australia squarely considered this question for the first time in Australian Securities and Investment Commission v King  FCA 1610, a decision of Downes J delivered on 20 December 2021.
In summary, her Honour held that the Court has jurisdiction to make a sequestration order based on a creditor’s petition which relied on non-compliance with a bankruptcy notice which sought the payment of a non-provable debt. Further, her Honour considered and rejected a submission that, consistent with English authority, the discretion to make a sequestration order in such circumstances should only be exercised if the creditor shows “special circumstances”.
As well as its considerable precedential value, the decision is a useful consideration of the sorts of discretionary factors that the Court will take into account in deciding when it may be appropriate to make a sequestration order on the basis of a debt which is not provable in the bankruptcy.
The case note available at this link provides a brief analysis of the decision.
Matthew Brady QC
18 January 2022