Introduction
The Full Court of the Federal Court of Australia’s decision in Karlsson v Griffith University (No 2) [2026] FCAFC 102 provides an illustration of the strict statutory framework governing bankruptcy notices and creditors’ petitions. In this case, the Full Federal Court determined it lacked the jurisdiction to retroactively extend the time for compliance with bankruptcy notices.
Background
Annika Karlsson (Ms Karlsson) sought to set aside a bankruptcy notice issued to her by Griffith University. She first applied to the Registrar, who dismissed her application on 7 November 2023.
Following this, Ms Karlsson sought review of the Registrar’s decision, and her application for review was again dismissed by a Federal Court Judge on 8 March 2024.
Ms Karlsson appealed this decision to the Full Federal Court of Australia.
On 22 November 2024, the Full Federal Court dismissed her appeal with costs and confirmed the primary judge’s decision that the bankruptcy notice would not be set aside.
On 24 February 2025 and 4 April 2025, Griffith University presented a creditor’s petition, and orders were subsequently made to sequestrate Ms Karlsson’s estate.
On 31 July 2025, Ms Karlsson applied for a review of that order.
On 21 April 2026, Griffith University filed an interlocutory application seeking to vary the orders made by the Full Federal Court on 22 November 2024 to dismiss the appeal with costs, on the grounds of the slip rule power in r 39.05 of the Federal Court Rules 2011 (Cth) or by exercise of the Full Federal Court’s implied jurisdiction. The variation sought was the addition of a new order to extend the time for compliance with the bankruptcy notice to the date of those orders (22 November 2024) pursuant to s 41(6A) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).
If the requested order was not granted and the time for compliance with the bankruptcy notice was not extended, Griffith University’s creditors’ petition would be invalid. Griffith University had understood the provision to mean that the time for compliance with its bankruptcy notice was extended until the Full Federal Courts decision on 22 November 2024.
Issues
How did section 41(7) off the Bankruptcy Act operate? Did it permit the extension of time for the notice?
The operation of s 41(6A) of the Bankruptcy Act
Findings
The operation of s 41(7) of the Bankruptcy Act
Section 41(7) of the Bankruptcy Act states:
“Where, before the expiration of the time fixed for compliance with a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.” (emphasis added)
Griffith University accepted it misunderstood the application of s 41(7) of the Bankruptcy Act.
The Full Federal Court stated that section 41(7) only operates in relation to applications to the Federal Court in its original jurisdiction, and did not operate to extend the time for compliance with the bankruptcy notice until the appeal proceeding was resolved in the Full Federal Court, which was exercising appellate jurisdiction.
Under s 44(1)(c) of the Bankruptcy Act, a creditor’s petition cannot be presented unless it is presented within six months of the act of bankruptcy.
The Court clarified the act of bankruptcy was Ms Karlsson’s failure to comply with the bankruptcy notice before its expiry, which was, at the latest, on 8 March 2024.
Accordingly, Griffith University had to present a creditor’s petition by 8 September 2024. However, it did not do so; its first creditors petition was presented on 24 February 2025.
The Full Federal Court confirmed it did not have the power to extend the time within which a creditor can present its petition.
The operation of s 41(6A) of the Bankruptcy Act
The Court stated it had no power to extend the time for compliance with the bankruptcy notice outside of the powers conferred to it under section 41(6A) of the Bankruptcy Act.
Under this section, the Court has power to extend time for compliance if an application has been made to the Court to set aside the bankruptcy notice before the expiration of the time fixed for compliance with the bankruptcy notice.
Accordingly, the Court’s power could only be exerted if an application had been made to set aside the bankruptcy notice before the expiry of the time for compliance, in this case, by no later than 8 March 2024 (the expiry of the bankruptcy notice).
The Court emphasised the importance of section 41(6A) to the Australian bankruptcy regime; once the time for compliance with a bankruptcy notice expires, this constitutes an act of bankruptcy. This, in turn, triggers the right to present a creditor’s petition.
The Court considered the necessity to ensure certainty and predictability within the bankruptcy regime due to its inherent complexity: “acts of bankruptcy ought not be able to be readily or easily undone by subsequent events”.
The Court referred to the analogous case of Re Shaddock; Ex parte Commonwealth Bank of Australia [1998] FCA 355. In that case, Justice Goldberg held that an application made after the expiry of the compliance period for a bankruptcy notice was incapable of grounding the Court’s jurisdiction to grant that extension: “the defect which has occurred is fatal to jurisdiction and not a mere irregularity”.
Further, Justice Goldberg considered the failure to file the application within the time prescribed as a condition precedent to the exercise of the Court’s jurisdiction.
The Court in the present case determined it did not have the power to make an order under section 41(6A) to extend the time for compliance with the bankruptcy notice.
Accordingly, the slip rule or implied jurisdiction could not be utilised to amend the previous order made by the Full Federal Court on 22 November 2024.
Key takeaways
Section 41(7) of the Bankruptcy Act extends the time for compliance with a bankruptcy notice only until the Court determines the debtor’s application to set aside the notice in its original jurisdiction. It does not extend the period until an appeal to the Full Federal Court is determined.
The Full Federal Court does not have the jurisdiction to retroactively extend the time for compliance with bankruptcy notices.
Practitioners should be careful when interpreting deadlines under legislation. When in doubt, practitioners should err on the side of caution to ensure compliance.
If you have any queries please contact:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
This article was prepared with the assistance of Chris Downes, Law Clerk.
This article was originally published on the Sladen Legal website: The Consequences of Misinterpreting Deadlines for Bankruptcy Notices: Karlsson v Griffith University (No. 2).
