Non-provable debts in bankruptcy: case note on ASIC v King [2021] FCA 1610

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 [2021] 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

Higgins Chambers

18 January 2022