Chu v Darmali [2025] FCA 1626

1. Mr Darmali's bankruptcy arises out of a judgment debt. On 15 July 2024, Jackman J delivered reasons for judgment in Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (Trial Judgment) [2024] FCA 766. Mr Darmali was a defendant to those proceedings. The plaintiffs "achieved substantial success in the proceedings" (at [312]). His Honour ordered the parties to serve draft orders with calculations of interest and submissions on the other parties, and final orders were made on 23 August 2024. Mr Darmali filed an appeal from those orders on 20 September 2024.
2. On 8 August 2024, Mr Darmali sold a substantial asset, a property at Vaucluse, to purchasers, being his wife and a company that was registered by his wife on the same day as the reasons for judgment were delivered. The sale was completed in eight days, on 16 August 2024. Of the proceeds of sale, Mr Darmali paid the net sale proceeds of about $1.9M to his mother, Darmawati Darmawati, on or about 20 August 2024. Mr Damarli says that this was a repayment of a secured loan. Mr Chubb is of the view that it may be a voidable transaction, or alternatively may be recoverable as an unfair preference if Ms Darmawati's unregistered mortgage is void as against the trustee.
3. The applications arise because of the following matters:

(a) Ms Chu served a bankruptcy notice on Mr Darmali on 26 September 2024;

(b) On 14 October 2024, Mr Darmali commenced an application in the Federal Circuit and Family Court of Australia (FCFCOA) seeking to extend the time for compliance with Ms Chu's notice. Orders were made ex parte extending the time for compliance with a bankruptcy notice issued by Mr Xu, the other plaintiff before Jackman J, but not Ms Chu's bankruptcy notice;

(c) The time for compliance with Ms Chu's bankruptcy notice expired on 17 October 2024, so that Mr Darmali committed an act of bankruptcy (under s 40(1)(g) of the Bankruptcy Act). Ms Chu then presented the petition on 18 October 2024.

(d) On 25 October 2024, the FCFCOA (again ex parte) amended the orders so that the time for compliance with Ms Chu's notice was also extended. Ms Chu and Mr Xu sought to have those orders set aside, but that application was dismissed by Judicial Registrar Birchall on 26 November 2024 who extended the time for compliance. This had the effect that Mr Darmali had no longer committed an act of bankruptcy: see Guss v Johnstone (2000) 171 ALR 598; [2000] HCA 26 at [58], [63]. The plaintiffs sought a review of the Registrar's orders.

(e) On 14 November 2024, Mr Darmali sought a stay in the appeal proceedings of the enforcement of Jackman J's orders. Thawley J heard that matter and on 20 December 2024 in Darmali v Chu [2024] FCA 1521, his Honour made an order staying the appeal subject to conditions, including that Mr Darmali pay $1.9M into a controlled moneys account and provide security for the costs of the appeal. Importantly, the parties entered into undertakings which Thawley J noted in Order 8. The undertakings expressly sought to retain the status quo in relation to Ms Chu's creditor's petition and the other processes:

(a) ... with the intention that:

(i) If Darmali's appeal is successful, no act of Bankruptcy will have been committed by Darmali by reason of non-compliance with the Bankruptcy Notices; or

(ii) If Darmali's Appeal is dismissed and the orders made against him by the primary judge are upheld, then:

1. Darmali will have committed an act of bankruptcy on 18 October 2024 by reason of his non-compliance with bankruptcy notice BN 273604; and

2. it will be open to [Ms Chu] to move on [her] Creditor's Petition ...

(f) Mr Darmali agreed that if his appeal were dismissed and Jackman J's orders were upheld, he would consent to the relief sought in the review of the Registrar's decisions.

(g) Mr Darmali did not provide security for costs or pay the monies into a controlled moneys account. His appeal was therefore dismissed with costs on 19 May 2025 without a hearing on the merits.

(h) On 27 June 2025, Judge Laing granted the application regarding the review of the Registrar's decisions and set aside the orders extending time for compliance with Ms Chu's bankruptcy notice. As a result, Mr Darmali had committed an act of bankruptcy on 17 October 2024, and the creditor's petition remained on foot.

1. However, in the interim, Mr Darmali presented his debtor's petition and became bankrupt on 30 January 2025, providing his statement of affairs on that date.
2. The issue in contest in this case arises out of the fact that the relation-back period for preferential payments becoming voidable pursuant to s 122(1) of the Bankruptcy Act is different, and shorter, for a debtor's petition as opposed to where a sequestration order is made on a creditor's petition. The relation-back date under the debtor's petition is the date of the act of bankruptcy, being 17 October 2024 (Item 2 of the table in s 122 of the Act). But if Mr Darmali were bankrupted on Ms Chu's petition, the relation-back day would be six months prior to the presentation of the petition, being 18 April 2024. That date would predate the date of the sale of the property and the disbursement of the net proceeds of sale.
3. The interim application was filed on 16 September 2025, and I made an order on 1 October 2025 extending the life of the creditor's petition to the period of 24 months commencing on 18 October 2024.
4. I heard the matter on 28 November 2025. At that hearing, Mr Darmali was cross-examined. As he had no representation, I gave him the opportunity after that cross-examination to give, in effect, any answers that he may have wished to give had he had counsel to re-examine him.
5. Mr Chubb, the trustee, was appointed under the current bankruptcy. He has been conducting the bankruptcy and has incurred remuneration and disbursement expenses. He is neutral on the applicant's application but if the order is made to annul the bankruptcy, he seeks to have some provision for his costs. He gave some helpful evidence in his affidavit as to the state of the administration of the bankruptcy.
6. I reserved my decision, and now give my reasons in relatively short form.

1. Ms Chu said that Mr Darmali's presentation of his debtor's petition was an abuse of the procedure in s 55 of the Bankruptcy Act and submitted that the bankruptcy should be annulled under s 153B(1) of the Bankruptcy Act.
2. Those sections relevantly provide:

(1) Subject to this section, a debtor may present to the Official Receiver a petition against himself or herself.

(2) A petition presented by a debtor under this section:

(a) shall be in accordance with the approved form; and

(b) shall be accompanied by a statement of the debtor's affairs and a copy of that statement.

...

153B Annulment by Court

(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.

...

1. The applicant relies on a line of authority from Re Mottee; Ex parte Mottee and Official Receiver (1977) 16 ALR 129 at 135 through to Clyne v Deputy Commissioner of Taxation (No 3) [1984] HCA 44; (1984) 154 CLR 589 at 599-600. The majority in Clyne (Gibbs CJ, Murphy, Brennan and Dawson JJ) said:

It is a purpose foreign to the bankruptcy laws, and an abuse of process, for a debtor to present a petition for the purpose of making it impossible for a creditor to obtain a sequestration order on a pending petition and with the further purpose of shortening the period of relation back, possibly placing beyond the reach of the trustee property which would otherwise vest in him.

1. The applicant submitted that the shortening of the period under s 122(1) has "real significance in this case, given the evidence of Mr Darmali's affairs". That is because the trustee would not, if he forms the view that he should, be able to pursue any unfair preferences in relation to the payment to Mr Darmali's mother. Ms Darmawati has claimed the balance of what she claims to be owed by filing a proof of debt in her son's bankruptcy.
2. In seeking to demonstrate that a real question arises on whether there is utility in making the order, the applicant took me to an HSBC account which is based in Australia and appears to have been operated by Mr Darmali or at least a person living in Castle Hill, where Mr Darmali lived at the time. The bank account was apparently in Ms Darmawati's name. Mr Darmali denied that he held a power of attorney for his mother, but the application clearly shows that Mr Darmali was involved - the application shows his email address, his then residential address, and an Australian mobile phone number. Ms Darmawati apparently resides in Indonesia. The applicant also pointed to what was said to be uncommercial aspects of the loan from Ms Darmawati.

1. Mr Darmali put on submissions which said, in a number of different ways, that the debtor's petition was not an abuse of process because he was genuinely insolvent (and referred to his statement of affairs which does indicate that he is insolvent). His affidavit in these proceedings made a number of allegations of sharp practice against the plaintiff's and Mr Xu's solicitors.
2. Mr Darmali submitted that a genuine and reasonable belief in his inability to pay his debts meant that the application for annulment should be refused. He cited a family law case of "Gould" in support of the proposition that "honest belief in necessity negates abuse". No such case with the given citation could be found, and in fact he cited that case with the same citation as another - genuine - case in his submissions. The applicant suggested that the family law case might be In the Marriage of V R & N Gould [1993] FamCA 126; (1993) 17 Fam LR 156; [1993] FLC 92-434, which is a case dealing with the constitutionality of s 85 of the Family Law Act 1975 (Cth). Mr Darmali said the case he cited was authority for refusing annulment of a bankruptcy based on a debtor's petition, on the basis that the bankruptcy was not a "deliberate attempt to forestall" other claims. In the Marriage of V R & N Gould is not authority for that proposition,
3. Mr Darmali also cited "Bassola v Bassola (No 2) [1985] FamCA 33; (1985) FLC 91-629" (which I assume to be a reference to Re Bassola and the Official Trustee in Bankruptcy [1985] FamCA 33; (1985) 10 Fam LR 207; [1985] FLC 91-629) which, again, does not say what Mr Darmali says it does - while it does deal with bankruptcy, it is not authority for the proposition that an honest filing of a bankruptcy petition is therefore not an abuse. It is also a first instance decision which has been overturned on appeal (see Official Trustee in Bankruptcy v Bassola (No 3) [1986] FamCA 12; (1986) 11 Fam LR 557; [1986] FLC 91-760). When questioned about this, Mr Darmali said that he had used a generative artificial intelligence program to produce his submissions. That explains the inapt and inaccurate references, but does not speak well of the care with which Mr Darmali has approached this application.
4. Two references which are correct in Mr Darmali's submissions are Edelsten v Deputy Commissioner of Taxation (1989) 86 ALR 257 and Re Betts, Ex Parte Official Receiver [1901] UKLawRpKQB 54; [1901] 2 KB 39, which he said show that "extreme abuse" is required. He said that "mere timing" does not constitute abuse if the respondent was entitled to voluntary bankruptcy under s 55(1) of the Bankruptcy Act: Clyne.
5. Mr Darmali sought to take the Court into the merits of whether the loan repayment to his mother was in fact voidable or a preference. He said that he does not hold a power of attorney for his mother, and she maintains her own bank accounts and is the sole beneficiary of them. Mr Darmali sought to make submissions as to the bona fides of the applicant in the underlying transaction. This was something that was held by Jackman J to be "baseless" (Chu v Lin at [12]). Neither of those matters was relevant to the outcome of these proceedings.
6. As to the undertakings, Mr Darmali submitted that they were effectively released once he could not meet the stay conditions, because his appeal had been dismissed without a hearing.
7. Finally, Mr Darmali pointed to the discretionary nature of the relief sought. He said that the interim application was itself an abuse of process, since the creditor's petition arose from "an administrative error" (i.e. the Registrar not extending the time for compliance with Ms Chu's bankruptcy notice) and said that the applicant had to prove "both voidability and improper motive" on the Briginshaw standard (Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34) because of the objective seriousness of the relief sought. In relation to this, Mr Darmali noted that it would be a "substantial injustice" for him to undergo a bankruptcy period which would be longer than that he is already facing.

1. The trustee relied on his affidavit dated 17 October 2025. He submitted that Order 7 sought as part of the interim application is appropriate. That order reads as follows:

Pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy), the remuneration and costs incurred by the trustee of the bankrupt's estate in the Annulled Bankruptcy be payable out of the property of the bankrupt as though they were incurred in any bankruptcy consequent on the Creditor's Petition in this matter.

1. Mr Chubb submitted that the power to make such an order is found in s 90-15(1) of the Insolvency Practice Schedule (Bankruptcy), which is Schedule 2 to the Bankruptcy Act, and allows the Court to "make such orders as it thinks fit in relation to the administration of a regulated debtor's estate". He submitted that the power conferred by s 90-15(1) is "very broad" and relied on Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 8) (2020) 144 ACSR 292; [2020] FCA 533 at [51] (Gleeson J). Should the annulment application be granted and an order in the form of Order 7 not be made, the trustee submitted that he would be restricted to the processes in s 154(1)(b) of the Bankruptcy Act which would only give him access to any property of the bankrupt vested in him on the annulment; as he noted in his submissions, "there are currently nil or very minor assets vested in the Trustee which can be applied to pay his fees and remuneration".
2. Mr Chubb has signed a consent to any new appointment.

1. The questions which arise for determination are:

(a) Should the bankruptcy be annulled?

(b) If so, on what terms?

(c) If so, should a sequestration order be made against Mr Darmali's estate?

1. The applicant submitted that the presentation of Mr Darmali's debtor's petition subverted the agreed regime of mutual undertakings to the Court. Mr Darmali's response to that was, effectively, that the terms of the undertakings did not contemplate a dismissal without a hearing. In a sense they did not, as the orders contemplate the "orders made against him by the primary judge [being] upheld", an action which possibly includes more than a mere dismissal of the appeal. However, it seems to me that that is a distinction without a difference; the primary judge's orders remain in force, the appeal was dismissed, and the consequential steps, including the dismissal of the review of the Registrar's decisions, have been undertaken. The clear intention of the undertakings was that, were the appeal dismissed, Mr Darmali would have committed an act of bankruptcy on 17 October 2024 by failing to comply with Ms Chu's bankruptcy notice. I do not regard Mr Darmali's submissions as to the ineffectiveness of the undertakings as being correct.
2. The parties gave those undertakings to the Court for a regime which provided expressly for the preservation of the act of bankruptcy occurring on 18 October 2024, and allowing the applicant to proceed on her creditor's petition should Mr Darmali's appeal not succeed. In those circumstances, I do not think it appropriate to allow Mr Darmali to resile from the regime set out in Thawley J's orders merely because the appeal was not substantively argued. The fact remains that the primary judge's orders remain in place, and the appeal has been dismissed.
3. The High Court in Clyne held that a debtor's petition presented while a creditor's petition was ongoing, with the intended effect of shortening the relation-back period, was an abuse of the process in s 55 of the Bankruptcy Act. Mr Meyerowitz-Katz, counsel for the applicant, referred me to the findings of Jackman J which were critical of Mr Darmali's credit (and to Thawley J's doubting of his credit), and to responses in affidavits given by Mr Darmali in the freezing order proceedings which seemed reasonably likely to be wrong or otherwise "difficult to believe". While I do not need to make an affirmative (or negative) finding on credit to determine the issues before me, I did find Mr Darmali's insistence that he was not focused on the bankruptcy issue after Jackman J's orders somewhat unbelievable. His assertion that he was very concerned not to be bankrupted so that he could prosecute his appeal does not sit with his parallel contention that he knew he was hopelessly insolvent, and so presented his own debtor's petition. Additionally, a number of his actions - including the short timeframe for the sale of his property to his wife and to a hastily-established related company, and his sworn statement that he was unaware of the destination of the net proceeds of the sale of the Vaucluse property - do not speak to his credit.
4. The Full Court in Edelsten noted (at 259) that "[t]he identity of the petition by virtue of which a sequestration order is made may have important practical consequences. First, the rights of creditors may be affected". At 261, the Full Court adopted the statement of the High Court in Clyne (at 598) where the majority said:

It is a purpose foreign to the bankruptcy laws, and an abuse of process, for a debtor to present a petition for the purpose of making it impossible for a creditor to obtain a sequestration order on a pending petition and with the further purpose of shortening the period of relation back, possibly placing beyond the reach of the trustee property which would otherwise vest in him.

1. The Full Court upheld the decision of Burchett J at first instance in Edelsten and noted that his Honour's decision as to the motives of the debtor was properly made on the civil onus, not needing to reach a Briginshaw standard. The appropriate standard remains reasonable satisfaction in the context of the civil onus. Neither the findings of the Full Court in Edelsten nor the reference in Re Betts to the "professional bankrupt" elevate the test for whether a bankruptcy should be annulled to "egregious" or "extreme" abuse as submitted by Mr Darmali.
2. It seems to me that given the express undertakings given, and the timing of the debtor's petition, even leaving aside my doubts as to Mr Darmali's veracity, I should accept the applicant's submissions that the debtor's petition was motivated by a desire to set a later date for the bankruptcy so as to avoid any investigation of unfair preferences and any consequent proceedings by the trustee. I am able to find, on that basis, that the petition "ought not to have been presented" as required by s 153B(1).
3. Accordingly, I am prepared to annul the bankruptcy.

1. The orders proposed by the applicant and, in part, by the second respondent, provide a regime by which:

(a) Mr Chubb be re-appointed as trustee;

(b) The trustee's costs in the current bankruptcy be preserved;

(c) The costs of the applicant both in this case and before the FCFCOA be preserved; and

(d) The date of the statement of affairs remain as 30 January 2025 so as to preserve the three-year period of Mr Darmali's bankruptcy.

1. I regard the orders as appropriate as, apart from the effect of the relation-back, they maintain the status quo of the length of the bankruptcy, the position as to costs of the trustee and the applicant, and the identity of the trustee. With the minor addition referred to below, I am prepared to make them in substantially the same form.

If so, should a sequestration order be made against Mr Darmali's estate?

1. The applicant submitted that the petition was "properly presented". Mr Darmali made no submissions as to the form of the petition or its accompanying affidavit, but noted that it was presented with "[t]he primary objective of ... [preventing him from] pursuing [his] appeal in the litigation". I note that Mr Darmali also relied on his insolvency, which was not in contest.
2. The only real issue as to whether the petition is "properly presented" arises out of a notation made by the Registrar on 16 September 2025, on the affidavit accompanying the creditor's petition. The notation reads:

There is an issue as to whether the creditor's petition was, as required by r 4.04(1) of the Federal Court (Bankruptcy) Rules 2016, accompanied by an affidavit prescribed under paragraph (a)(i), (a)(ii) or (a)(iii) of r 4.04(1).

1. Rule 4.04(1)(a) of the Federal Court (Bankruptcy) Rules 2016 (Cth) provides that, if a creditor's petition is founded on an act of bankruptcy specified in s 40(1)(g) of the Bankruptcy Act (i.e. a failure to comply with a bankruptcy notice) the petition must also be accompanied by an affidavit stating:

(i) that the records of the Court and the records of the Federal Circuit Court have been searched and no application in relation to the bankruptcy notice has been made; or

(ii) that an application was made in the Court or in the Federal Circuit Court (as the case may be) for an order setting aside the relevant bankruptcy notice and the application has been finally decided; or

(iii) that an application was made in the Court or in the Federal Circuit Court (as the case may be) for an order extending the time for compliance with the bankruptcy notice and the application has been finally decided; ...

1. The applicant did not retreat from the fact that the affidavit which did accompany the petition did not comply with the requirements of r 4.04(1)(a). The affidavit demonstrated that a search had been made, and that applications had been filed. The submission was, rather, that the situation in this case (i.e. where there was an application that had not been finally decided) was not contemplated by the rule. She further submitted that she was not, thereby, prevented from presenting a creditor's petition.
2. The Registrar's notation refers to the accompanying affidavit being "required". That is a correct interpretation of the use of the word "must" in the rule. The applicant submitted, however, that despite that requirement, the absence of the accompanying affidavit complying with the terms required by r 4.04(1)(a) is not a matter that would invalidate a petition. In making that submission she relied on Winn v Boss Lawyers Pty Ltd [2022] FCAFC 156 (Charlesworth, Downes and Goodman JJ), an appeal in which a non-compliance with the same rule was raised. The Full Court held that "[o]n its express terms, r 4.04 prescribes material that is to "'accompany' a creditor's petition" (at [87], emphasis in original). The Full Court agreed with the primary judge's view that a failure to file an affidavit as required by the rule is "a defect to which s 306(1) of the Bankruptcy Act applies" (at [88] of the Full Court decision). Section 306 provides:

Proceedings under this Act are not invalidated by a formal defect or an irregularity unless the court before which the objection on that ground is made is of the opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.

1. At [92], the Full Court said that the provision of the affidavit was not a requirement to enliven a court's jurisdiction to make a sequestration order, and the failure to provide an affidavit was therefore a formal defect. There is no "continuing obligation on the petitioning creditor to conduct searches and report their results in affidavits after the creditor's petition is filed": at [97].
2. The facts in Winn v Boss Lawyers differ slightly from this case. The subject matter of the accompanying affidavit would have been the existence of an application for leave to appeal to set aside the orders of Rares J who had dismissed an appeal from one primary judge in the FCFCOA and an application for leave to appeal from another (at [19]). Accordingly, the searches required by r 4.04 would not have revealed those applications, as they were not applications in relation to the bankruptcy notice. As a result, no substantial injustice accrued to the appellant in Winn v Boss Lawyers because of the failure by the respondent to undertake, and set out in an affidavit, the relevant searches.
3. In the current case, the applicant's petition was accompanied by an affidavit setting out the results of a search, noting that there was an application seeking orders extending time for compliance with or, alternatively, setting aside the bankruptcy notice. The question is whether substantial injustice accrues to Mr Darmali from the filing of an affidavit departing from the terms of the rule.
4. It seems to me that now that, as the various applications to extend time and to set aside have been the subject of undertakings and agreements, and have now been determined, there is no substantial injustice in the making of a sequestration order despite the lack of compliance with the rule.
5. These are unusual circumstances and I am not of the view that the rule may in general terms be dispensed with by omitting an affidavit accompanying the petition or by providing an affidavit which details different searches. As submitted by the applicant, "the evident purpose of the rule is to ensure that the Court is informed of the status of any application to set aside or extend the time for compliance with the bankruptcy notice - because that may have a bearing on the outcome of the petition". There is a clear utility with the rule being complied with. However, as I have said, these circumstances are unusual and given the course that this matter has taken, there is no substantial injustice to the first respondent, particularly given the effect of the orders which maintain the length of the current bankruptcy.

1. I have been provided with orders from the applicant with input from the trustee. I am prepared to make those orders, with the additional order that the requirements of r 4.04 be dispensed with pursuant to s 306(1) of the Bankruptcy Act.
2. The parties should bring in draft orders reflecting these reasons.

I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Needham.