How is annulment different from discharge?
Discharge ends a bankruptcy by time, three years after the statement of affairs is filed or debtor’s petition accepted (s 149). A trustee’s objection can extend that to five or eight years (s 149A). Discharge releases most provable debts, with exceptions such as fraud debts (s 153).
Annulment cancels the bankruptcy itself. It usually happens before discharge, though AFSA says it can occur afterwards in limited cases. A court annulment does not release debts, so unpaid creditors can pursue the former bankrupt.
What are the three ways to annul a bankruptcy?
Payment in full (s 153A). Once the trustee is satisfied all the bankrupt’s debts are paid in full, the bankruptcy is annulled automatically from the last payment. “Debts” means all proved debts, interest, and the costs of the administration, including the trustee’s remuneration (s 153A(6)). The trustee may allow for undetermined proofs and costs it is likely to incur: Warren v Sijabat [2025] FCA 1410.
Composition or arrangement (ss 73–75). A bankrupt can lodge a signed written proposal with the trustee (s 73). The trustee calls a meeting and sends creditors the proposal and a report. If creditors accept it by special resolution, the bankruptcy is annulled that day (s 74(1)). That needs a majority in number, and 75% in value, of creditors voting. An accepted proposal binds all creditors as to provable debts (s 75).
Court order (s 153B). The court can annul if satisfied the sequestration order ought not to have been made. For a debtor’s petition, the question is whether it ought not to have been presented or accepted. The Federal Court and the Federal Circuit and Family Court of Australia (Division 2) share jurisdiction (s 27).
When will the court annul a bankruptcy under s 153B?
The Full Federal Court applies two stages: Rigg v Baker [2006] FCAFC 179; (2006) 155 FCR 531. First, the applicant must show the court was bound not to make the order. Second, the court decides whether to exercise its discretion.
The threshold. The court considers the facts as they stood when the order was made, including facts not then known. Later events are irrelevant at this stage. Common grounds are that the debt was not owed, or the debtor was solvent.
Looking behind the judgment. A judgment is usually accepted as proof of the debt. The court may look behind it where there are substantial reasons to doubt a real debt exists: Wren v Mahony (1972) 126 CLR 212. That applies even after a contested trial: Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28. On annulment the hurdle is higher. If the sequestration judge refused to look behind the judgment and an appeal failed, fresh evidence is needed. See Shaw v Yarranova Pty Ltd [2017] FCAFC 88.
Solvency. Solvency means paying debts as they fall due from available resources. Assets that cannot be realised quickly may not count. The test is ability to pay, not willingness: Thompson v Lane (Trustee) [2023] FCAFC 32. On a debtor’s petition, the court may annul even if the bankrupt was insolvent (s 153B(2)).
The discretion. The onus is heavy. Applicants must put all relevant financial material before the court with complete candour. An apparent lack of candour is itself a ground to refuse relief: Thompson v Lane. Other factors include present solvency, delay, failure to oppose the petition and non-compliance with the trustee. In Maroon v Wengel (Trustee) [2026] FCA 1129, the applicant showed an arguable case of unconscionable conduct behind the judgment debt. Annulment was still refused. She had not raised it earlier, including on appeal, and relief would be futile.
What is the court process and who pays the costs?
Part 7 of the Federal Court (Bankruptcy) Rules 2016 (Cth) governs applications. The Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) mirror it. The application must state its grounds and be served on the trustee at least seven days before the hearing (r 7.02). Every known creditor must receive notice in Form B11 in the same time (r 7.03). If directed, the trustee files an affidavit report on the bankrupt’s conduct, examinable affairs and the administration (r 7.06). Section 153B does not limit who may apply; a creditor or trustee can also seek annulment.
Costs follow the event, so an unsuccessful applicant generally pays the trustee’s costs. A successful applicant still meets the trustee’s remuneration under s 154. An undertaking to pay those costs helps: Rigg v Baker.
Appeal or review first. Annulment is not a substitute for an appeal. A registrar’s sequestration order can be reviewed afresh by a judge: Totev v Sfar [2008] FCAFC 35; r 7.05. An order made in the debtor’s absence may be set aside under r 39.05 of the Federal Court Rules 2011 (Cth). Arguments not run then may count against a later annulment, as Maroon shows.
A worked example. A Brisbane contractor is made bankrupt on a $180,000 judgment debt and did not appear. He later learns a co-guarantor paid the creditor $150,000 before the hearing. If the order is recent, review or r 39.05 may be quicker. Otherwise he applies under s 153B, proving the payment, his solvency at the time and why he was absent. He must also disclose every asset and liability.
What happens when a bankruptcy is annulled?
Under s 154, the trustee’s prior sales, payments and other acts remain valid. The trustee may apply property it still holds to the administration’s costs, including its remuneration. Any shortfall is a debt the former bankrupt owes the trustee (s 154(2)). Remaining property reverts to the former bankrupt, subject to any court vesting order (s 154(3)). The trustee certifies the annulment to the Official Receiver within two days.
The National Personal Insolvency Index entry remains permanently, showing the annulment reason and date.
Recent developments
The Bankruptcy Amendment (Discharge from Bankruptcy) Act 2023 (Cth) commenced on 23 November 2023. It confirmed that the discharge period runs from the filing of the statement of affairs. In July 2024 the Attorney-General announced further reforms: a $20,000 bankruptcy notice threshold, up from $10,000, and 28 days to respond, not 21. A one-year bankruptcy period was flagged as a longer-term priority only. As at 5 October 2026 none of these has been enacted. The Bankruptcy Regulations 2021 (Cth), compiled 1 July 2026, still prescribe $10,000 and 21 days.
What should you do if you want to annul a bankruptcy?
- Identify the likely route: payment, composition or court order.
- Ask the trustee for its figures: proved debts, interest, remuneration and costs.
- If the order was wrong, act quickly. Consider review or appeal first.
- Gather evidence of your financial position at the date of the order.
- Comply with your duties to the trustee, including delivering books and records.
- Prepare full and frank financial disclosure.
How Taylor David can help
We act across Australia for bankrupts, their families, creditors and trustees. We can:
- assess which route fits and what it will cost
- prepare and negotiate composition proposals
- bring or oppose s 153B applications and reviews
- negotiate the trustee’s remuneration and costs.
Our principal, Scott D. Taylor, has annulled the bankruptcies of a number of high-profile individuals, including one of the largest bankruptcies in Australian history, with more than $2.12 billion of admitted creditor claims. Read more about Scott.
For bankruptcy notices and creditor’s petitions, see personal guarantees and bankruptcy. This work sits within our insolvency, reconstruction & turnaround and litigation practices.