Annulment (in bankruptcy)

An annulment in bankruptcy is the legal process by which a bankruptcy order is cancelled or annulled. An annulment effectively means that the bankruptcy is undone before the end of the bankruptcy period, and the debtor is restored to their pre-bankruptcy financial status.

A bankruptcy can be annulled in the following events:

  1. If the debtor pays off all their outstanding debts in full, including any interest and fees;
  2. If the debtor proposes a composition or arrangement in satisfaction of the debts that is approved by the creditors; or
  3. If the bankruptcy order was made in error or the court did not have jurisdiction to make the order.

Payment of debts

Pursuant to section 153A of the Bankruptcy Act 1966 (Cth) a person’s bankruptcy can be annulled if the trustee is satisfied that all of the bankrupt’s debts have been paid in full (if the debt includes interest the interest, must be paid up until the date that the debt is satisfied).

Proposal of composition

Pursuant to section 74(1) of the Bankruptcy Act 1966 (Cth), a bankruptcy can be annulled if a proposal made by the bankrupt under section 73 for a composition of the satisfaction of debts (i.e., an alternate arrangement) is accepted by a special resolution of creditors. This type of proposal must only be put to and accepted by a bankrupt’s creditors and usually will only be accepted if the composition would put the creditors in a better position vis-à-vis a person being bankrupt.

Court order

Pursuant to section 153B of the Bankruptcy Act 1966 (Cth), if the Court is satisfied that the sequestration order made to bankrupt a person ought not to have been made, or a debtor’s petition for a sequestration order ought not to have been presented or accepted, a Court can make an order for the annulment of bankruptcy.

If bankruptcy is annulled any surplus assets that are left after the payment of the trustee’s remuneration will be given back to the bankrupt. However, all creditors who have security interests over these assets will retain their rights in relation to those assets and the bankrupt will still be liable for all the debts payable that were not provable in bankruptcy.

If the annulment is successful, the debtor’s name remains listed on the National Personal Insolvency Index with the bankruptcy marked as ‘annulled’.