Shu v Zhengzhou Lvdu Real Estate Group Co Ltd [2026] FCA 105

Amount as per the accompanying final judgment/s or final order/s (note A)

Add interest accrued since date of judgment/s or order/s (note C)

Less payments made and/or credit allowed since judgment/s or order/s

1. Note A below that table records that the "accompanying final judgment or final order" is expressed in the foreign currency amount of CNY318,827,295.13 which is converted using the rate of exchange for that currency published by the Reserve Bank of Australia as at 3 June 2025.
2. Note C records as follows:

Where interest is being claimed, the provisions under which it is claimed and the basis of its calculation are shown in the accompanying interest schedule. If no interest is claimed the creditor need not provide the schedule with this notice.

1. Consistent with it being recorded in line 3 of the table that "$0.00" interest is claimed, no interest schedule accompanies the bankruptcy notice.
2. The bankruptcy notice states that Ms Shu was required within 21 days after 4 August 2025 to either pay the creditor the amount of the debt claimed or make arrangements to the creditor's satisfaction for settlement of the debt. That date was subsequently extended to allow for the decision in this proceeding.
3. Ms Shu challenges the validity of the bankruptcy notice on the following grounds.
4. First, Ms Shu says that the bankruptcy notice is defective because it overstates the amount of the indebtedness. It is said that that is a substantive defect, ie it fails to meet an essential requirement of the Bankruptcy Act 1966 (Cth), that invalidates the notice regardless of whether it creates substantial prejudice to the debtor. In the alternative, it is said that the bankruptcy notice, by overstating the amount of the indebtedness, is misleading and on that basis it is invalid. In the further alternative, it is said that the overstatement of the amount causes substantial prejudice to Ms Shu. It is also said that is to extent that the bankruptcy notice does not overstate the indebtedness because accrued interest has the effect of the amount in fact due being more than the amount claimed, the notice is invalid for not having set out the interest claimed and its manner of calculation.
5. Secondly, Ms Shu says that the bankruptcy notice is defective because it fails to record payments that have been made towards reducing the indebtedness. It is said that that is a substantive defect because there was a failure to meet a requirement that is made essential by the Act. In the alternative, it is said that the defect causes the bankruptcy notice to be misleading.
6. The respondent disputes Ms Shu's challenges to the notice. In particular, it contends that the notice does not overstate the amount due and that any defect in the notice can be cured by an order under s 306 of the Bankruptcy Act. The latter contention was raised late during the hearing and was then supported by further written submissions after the hearing to which Ms Shu responded, also in writing.
7. For the reasons below, I have concluded that the bankruptcy notice is invalid and must be set aside. Moreover, because s 306 is not engaged, it is unnecessary to consider the respondent's application for an order under that section.

1. There is no dispute about the material facts.
2. Ms Shu was the guarantor of a loan from the respondent to Henan Shengrun Real Estate Group. The respondent and the borrower are Chinese companies. The borrower defaulted. On 4 September 2020, the Zhengzhou Intermediate People's Court of Henan Province entered judgment against the borrower in the amount of CNY170 million plus interest and ordered that Ms Shu bears collateral liability for all the payment obligations of the borrower. It was also ordered that the borrower and Ms Shu were liable for the amount of CNY969,855 in respect of the costs of the proceeding.
3. On 1 February 2024, Nixon J in the Supreme Court of New South Wales made orders enforcing the Chinese judgment. Taking account of payments or recoveries totalling CNY22,964,226.54 in partial satisfaction of the judgment debt including interest and costs, judgment was pronounced in the sum of CNY318,827,295.13. Ms Shu did not appear to oppose that judgment. The reasons for judgment are published as Zhengzhou Lvdu Real Estate Group Co Ltd v Shu [2024] NSWSC 58.
4. On 2 February 2024, being the day after the judgment, a payment in the sum of CNY874,893.12 was made in reduction of the judgment debt. At that time, one day of interest had accrued on the judgment debt under s 101 of the Civil Procedure Act 2005 (NSW). That amounted to interest in the sum of CNY90,160.18. Having regard to s 136 of the Civil Procedure Act, the payment on 2 February 2024 is to be appropriated, firstly, to reduce the interest to zero and, secondly, to reduce the principal judgment debt to CNY318,042,562.19. The reduction of the principal judgment debt (ie excluding interest and costs) is CNY784,732.94, or $168,717.58 at the rate of exchange recorded in the bankruptcy notice. That is to say, the principal portion of the judgment debt was (and is) $168,717.58 less than the amount claimed in the bankruptcy notice.
5. Six further payments in the total amount of CNY7,004,880 were made before the bankruptcy notice was issued on 10 June 2025. Because of the substantial daily accumulation of interest, none of those payments had the effect of reducing the principal indebtedness - they are all to be appropriated to interest. The result is that as at the date of the notice, the total judgment debt including interest was substantially - as much as $6 million - more than the amount claimed in the notice.
6. Prior to the bankruptcy notice at issue in the proceeding before me, the respondent issued three bankruptcy notices. Each relied on the judgment of the Supreme Court on 1 February 2024. Ms Shu applied to set each of them aside. They were all set aside by consent without the respondent making any admission as to their invalidity. Each claimed different amounts in respect of the judgment debt and interest, and each included a deduction for payments received.
7. The respondent explained in evidence that it had consented to each of those bankruptcy notices being set aside "in order to avoid an evidence-heavy, technical dispute about whether or not certain payments allegedly made towards the NSW Judgment Debt ought to have been accounted for ... and if so, what CNY:AUD exchange rate or rates ought to be applied to any of the alleged payments". It explained that in order to avoid the recurrence of those problems, it elected to issue the present bankruptcy notice on the basis of the principal sum of the Supreme Court judgment without accounting for either interest accrued on that judgment or payments allegedly made towards the judgment debt. It did so on the basis that the accrued interest is far greater than the total of all payments made such that the amount claimed in the bankruptcy notice does not exceed the amount in fact due under the judgment.
8. The respondent sought to explain what it had done in a letter which accompanied the bankruptcy notice when it was served on Ms Shu. Relevantly, the letter stated:

Please note that, for the purposes of Bankruptcy Notice BN278728 of 2025, our client is not relying on its entitlement to interest and costs in relation to the NSW Judgement of the Hon. Justice Nixon dated 01 February 2024, however our client does not waive those entitlements, but rather expressly reserves those rights.

1. Within the period fixed for compliance with the bankruptcy notice, Ms Shu gave notice to the respondent under s 41(5) of the Bankruptcy Act. She complained that the notice misstates the amount due to the creditor because the total amount due as claimed in the Bankruptcy Notice exceeds the amount in fact due and that it fails to take into account any of the numerous payments that were made since the entry of judgment on which it is based.

1. Section 40(1)(g) of the Bankruptcy Act provides that a debtor commits an act of bankruptcy if a creditor who has obtained against the debtor a final judgment has served on the debtor a bankruptcy notice under the Act and the debtor does not, within the time specified in the notice, comply with the requirements of the notice or satisfy the Court that they have a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt, being one that they could not have set up in the action in which judgment was obtained. Where a debtor has committed an act of bankruptcy, the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor (s 43(1)).
2. Section 41 deals with bankruptcy notices. Section 41(1)(a) read with s 41(3)(b) provides that an Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against the debtor a final judgment or final order, the execution of which has not been stayed. Section 41(2) provides that the notice must be in accordance with the form prescribed by the Bankruptcy Regulations.
3. Section 41 further provides as follows:

(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time fixed for compliance with the notice, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.

(6) Where the amount specified in a bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with subsection (5), he or she shall be deemed to have complied with the notice if, within the time fixed for compliance with the notice, he or she takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it.

1. Section 306(1) of the Bankruptcy Act provides as follows:

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 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. Division 1 of the Bankruptcy Regulations deals with bankruptcy notices. Regulation 9(1) provides that for the purposes of s 41(2) of the Bankruptcy Act, the form of bankruptcy notices set out in Sch 1 is prescribed. The prescribed form in Sch 1 is, relevantly, as set out and explained in [2]-[4] above. It also contains a schedule in which the details of the calculation of post-judgment interest is to be set out where such interest is claimed, including identifying the statutory provision under which interest is claimed.
2. The effect of s 306 is that in the event of some failure to comply with a statutory requirement, ie some defect or irregularity, it must be asked whether the defect or irregularity is a formal defect or irregularity within the purview of s 306: Adams v Lambert [2006] HCA 10; 228 CLR 409 at [18]. Whether or not a defect or irregularity is substantive rather than merely formal can be determined by asking whether it fails to meet a requirement made essential by the Bankruptcy Act: Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; 165 CLR 71 (Kleinwort) at 79-80; Adams v Lambert at [25]. If the defect or irregularity is merely formal, then it is necessary to consider whether substantial injustice has been caused by the defect or irregularity, and whether the injustice cannot be remedied by an order of the court: Adams v Lambert at [18].
3. One potential kind of error in a bankruptcy notice, which is probably the most likely and the most significant form of error, is overstatement of the amount owed by the debtor. That is dealt with expressly by ss 41(5) and (6). If a notice under s 41(5) is given, then the error does not fall to be dealt with under s 306. See Walsh v Deputy Commissioner of Taxation [1984] HCA 33; 156 CLR 337 at 339 and Adams v Lambert at [18]. The respondent accepts that in such a case, the overstatement leads to invalidity.

1. In the bankruptcy notice at issue in this case, the amount stated in row 1 of the table is correct: $68,547,868.45 is the amount of the judgment annexed to the notice when converted to Australian dollars at the exchange rate recorded in Note A. There is no dispute that the exchange rate that was used and the calculation are correct.
2. However, the same amount reflected in row 6 as being the total debt amount after adding costs and interest (where claimed) and deducting payments that have been made is problematic. That is because no interest or costs are claimed in the notice, and no payments are recorded. The result is that the bankruptcy notice is ordinarily to be understood as claiming only the principal judgment amount - there is no other reasonable way of reading the notice in the light of it being explicitly recorded that "$0.00" is claimed for interest and costs and "$0.00" is credited for payments made. Such a reading is reinforced by the letter that accompanied the notice which stated that interest and costs were not claimed in the notice. Thus, as at the date of issue of the notice it overstates the principal sum owing by $168,717.58 (as explained at [15] above) - a substantial and material amount.
3. Given that Ms Shu, the debtor, served a notice under s 41(5), such an overstatement would ordinarily lead to invalidity regardless of any question of whether the defect is a mere formality and whether substantial injustice resulted. The respondent seeks to avoid that conclusion by contending that the amount claimed is not an overstatement of "the amount in fact due" (vide s 41(5)) as at the date of the notice because, as at that date, the amount actually due on the judgment, taking into account interest and payments received, vastly exceeded the amount claimed. Although the arithmetic underlying that submission can be accepted (see [16] above), the legal consequences cannot.
4. The difficulty is that one can only get to the conclusion that as at the date of the notice the amount in fact due was more than the amount claimed by including interest in the claim. However, the bankruptcy notice explicitly claims no interest. If interest is included in a bankruptcy notice it must be calculated and cannot simply be left to the debtor to work it out: Kleinwort at 78, citing Re O'Keefe; Ex parte Australian Factors Ltd (1963) 19 ABC 101 at 103. See also in this Court, Re McDonald, Ex parte Elder Smith Goldsborough Mort Ltd [1978] FCA 12; 18 ALR 505 at 507.25-27. The notice would therefore be invalid for failing to state interest that is claimed.
5. Despite those authorities, the respondent submits that a failure to include the interest claimed is not a substantive defect and must accordingly be dealt with under s 306. It relies on Ashdown v Kirk [1999] FCA 1263 (particularly at [26] and [27]) and the unsuccessful appeal from that judgment, Kirk v Ashdown [1999] FCA 1664 (particularly at [23]).
6. In that case the relevant complaint was that the bankruptcy notice failed to give "appropriate particulars of the source of the obligation to pay the interest claimed in the notice and of the calculation thereof" (see the primary judgment at [11]). The primary judge, Dowsett J, found that there was a failure to identify in the notice the relevant "provision" justifying the claim for interest, and it was held that that constituted non-compliance with the Bankruptcy Act (at [25]). Since the amount claimed was not incorrect, it was necessary to determine whether the failure to identify the relevant statutory provision was objectively capable of misleading the debtor as to what was necessary for compliance with the notice (at [27]). His Honour held that no substantial injustice had been caused by the irregularity (at [29]).
7. The Full Court, in dismissing the appeal, held that the omission to specify the source of the obligation to pay interest was a formal defect or irregularity, and that no substantial injustice had been caused (at [23]). The correctness of that analysis of such a defect was ultimately confirmed in Adams v Lambert. However, the case did not deal with the question whether, when interest is claimed, a failure to include any interest in the table in the bankruptcy notice is a substantive defect. Kirk v Ashdown is thus not authority for the proposition for which it is advanced. The respondent also cites a number of other cases, but I do not find them to be pertinent to the issue at hand and none is contrary to the authorities identified in [31] above.
8. In the result, if interest is claimed it is a requirement made essential by the Bankruptcy Act that the amount of interest and its manner of calculation is included in the bankruptcy notice. A failure to meet that requirement will result in invalidity. Any error in the amount of interest claimed or in the manner of its calculation may not be a substantive error and may then engage s 306, but that does not arise for decision in this case. In any event, if the failure to include the amount of interest that is claimed and the manner of its calculation is not a substantive defect leading to invalidity, in this case it is certainly misleading and leads to a substantial injustice. That is because the failure communicates to the debtor that no interest is claimed whereas, in fact, interest is claimed. That is a material mischaracterisation of the debt that is claimed and is apt to mislead.
9. So, however one looks at it, the notice is invalid. Either, because the debtor gave notice under s 41(5), it is invalidated by reason that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, or the notice is defective for failing to meet a requirement made essential by the Act being the failure to set out the interest that is claimed. The respondent cannot have it both ways: it cannot enjoy the benefit of the simplicity of not including any interest (and the calculation underlying any interest) in the notice and at the same time rely on the accrual of interest to justify the amount claimed not being in excess of the amount in fact due. In my judgment, the amount claimed excluded interest and was thus in excess of the amount in fact due. Alternatively, if the amount claimed is regarded as not exceeding the amount in fact due because of the accrual of interest, the failure to claim interest is a substantive failure that invalidates the notice. In those circumstances, consideration of any ameliorating effect of s 306 does not arise and it is unnecessary to consider the respondent's application for an order under s 306 that remedies the defect. As explained, even if the defect or irregularity is only formal within the meaning of s 306, it is materially misleading and hence causes substantial injustice.
10. It is also unnecessary to consider whether the failure to include the payments that had been made towards the judgment debt prior to the date of the notice has the effect of invalidating the notice.

1. For those reasons, the bankruptcy notice must be set aside. There is no reason why the respondent should not pay the applicant's costs.

I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.