Bankruptcy update – Lamb v Sherman [2023] FCAFC 85 – failure to set aside a bankruptcy notice – where 7 minutes is too late

In May 2023, the Full federal Court of Australia handed down the decision in Lamb v Sherman [2023] FCAFC 85 (25 May 2023).

In 2022, the primary judge found that Ms Lamb had committed an act of bankruptcy by failing to comply within the 21 days permitted (that is, by 15 June 2022) with a bankruptcy notice issued on 22 April 2022.  The creditor, Mr Sherman served on Ms Lamb a bankruptcy notice on 25 May 2022.

Generally speaking, a debtor commits an act of bankruptcy if a creditor has served on the debtor in Australia a bankruptcy notice and the debtor does not comply with the notice and within the time fixed for compliance, being 21 days from service of the bankruptcy note (section 40 and section 41 of the Bankruptcy Act 1966 (Cth)).

A debtor can set aside a bankruptcy notice served by a creditor where an application has been made to Court (Section 51(6A) of the Bankruptcy Act 1966 (Cth)).

Before the Court in the present case was the question as to what date and time the application was “made” to set aside the bankruptcy notice for purposes of section 51(6A) of the Bankruptcy act 1966 (Cth)).

The main issue in the case was whether at 4:37pm on 15 June 2022, some seven minutes after the time for a document to be lodged at Court to set aside a bankruptcy notice was valid (Rule 2.25(3) of Federal Court Rules 2011 (Cth)).

Importantly, Rule 2.25(3) of Federal Court Rules 2011 (Cth) provides if a document is sent by electronic communication to a Court registry, the document is, if accepted by a Registry taken to have been filed:

(a) if the whole document is received by 4.30 pm on a business day for the Registry—on that day.

(b) in any other case—on the next business day for the Registry.

As the application to set aside the bankruptcy notice was lodged at Court 7 minutes late, the Court held the application was deemed to have been filed on the next business day, being 16 June 2022.

Therefore, Ms Lamb committed an act of bankruptcy on 15 June 2022 and Ms Lamb’s appeal case before the Full Federal Court was dismissed.