If you have acquired a bankruptcy notice or court order you must act rather quickly to minimise future suffering. Owing someone money referred to here as a creditor, could be any individual or company to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will get in touch with the Australian Financial Security Authority (AFSA) who will subsequently issue a bankruptcy notice requesting payment of that money.
Obviously, there is a threshold to the amount of money owing to creditors before they can phone the AFSA, and the minimum amount is $5,000. Once the creditor has obtained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s crucial that you take swift action if you receive a bankruptcy notice from the AFSA. You will commit an ‘act of bankruptcy’ if you do not do any of the following:
- Abide by the bankruptcy notice within the requested timeframe mentioned on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside within the timeframe declared on the notice (normally 21 days).
Committing an act of bankruptcy means that you give your creditor the authorisation to apply to the Federal Circuit Court for a sequestration order, or simply put, an order that will make you legally bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice may be served to you in a range of ways; it can be validly served to you in person, by normal post, or hand delivered to your registered address. In special circumstances, a bankruptcy notice may be served electronically, either via fax or email.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of the above sources, a court order can be obtained which allows creditors to serve the bankruptcy notice in a separate way.
I have a bankruptcy notice, now what?
To abide by a bankruptcy notice, you must do one of three things:
- You must pay in full the amount stated in the bankruptcy notice; or
- Set up an agreement with the creditor, for example a payment plan over a certain timeframe. The creditor must agree to the payment arrangements terms and conditions. It’s always advocated that the agreement is made in writing so you have proof of the agreement.
- Get some insolvency advice. At this point, you must not delay and get some recommendations. If you have a notice of bankruptcy, just phone us here at Bankruptcy Experts Dandenong on 1300 795 575 for a Free Consultation.
It is crucial to note that all of these actions must be taken inside the timeframe cited in the bankruptcy notice (usually 21 days from the date of the notice).
Can I get my Bankruptcy Set Aside?
If warranted, you can apply to the court to have the bankruptcy notice set aside or cancelled. This should never be taken lightly however, given that if there are unsatisfactory grounds to make an application then you will be obligated to pay all the creditors legal fees which only inflates the debt you owe to them.
If you do apply for your bankruptcy notice to be set aside, it’s always a prudent idea to request that the court lengthens the timeframe for compliance with the bankruptcy notice, so you avoid committing an act of bankruptcy while the court processes your application. In short, don’t leave it to the last minute.
To have your bankruptcy notice set aside, one of the following conditions must apply:
- The debt claimed on the bankruptcy notice does not exist;
- There is a defect in the bankruptcy notice;
- You have grounds for a counter-claim, cross demand, or set-off, equal to or exceeding the level of debt issued in the bankruptcy notice; or
- The bankruptcy notice is an abuse of process.
What if the debt claimed on the bankruptcy notice does not exist?
To demonstrate that the debt claimed on your bankruptcy notice does not exist, you have to supply evidence that:
- You have in fact paid the creditor the amount owing under the order or judgement; or
- You have appealed the order by launching proceedings to set aside the order or judgement.
In your application to set aside the bankruptcy notice, you can not simply say that you have an authentic argument to do so. You must have already submitted the relevant documents with the court that handed down the order. Further, you must have the capacity to produce evidence to the Federal Circuit Court that shows that you have an authentic case for grounds of appeal.
On top of that, if you do not begin the process of setting aside the judgement or order before filing your application to set aside the bankruptcy notice, the Federal Circuit Court will not be able to lengthen the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. As a result, you will have committed an act of bankruptcy.
What is a Defective Bankruptcy Notice?
A defect in the form or content of the bankruptcy notice arises when the creditor has failed to follow the requirements of the Act, in which case you may have grounds to make an application for the bankruptcy notice to be set aside. Some defects are more severe than others, and not all defects will make a bankruptcy notice void as these defects can be amended at the discretion of the court under s 306( 1) of the Act.
Often, the defect must be significant or inflict confusion over the actions you must take to comply with the bankruptcy notice for you to have the capacity to set aside the bankruptcy notice.
There are some necessary requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will ultimately be void. The following details some examples where these fundamental requirements have not been met:
- The creditor’s address on the bankruptcy notice should make it reasonably practicable for the debtor to make payment (e.g. PO Boxes may not be appropriate);.
- The creditor’s and debtor’s name on the bankruptcy notice must match the creditor’s and debtor’s name in the order or judgement;.
- Attached to the bankruptcy notice must be a copy of the judgement or order;.
- It is a requirement that there is a timeframe for compliance included in the bankruptcy notice;.
- If the creditor is claiming interest on the debt owed to them, the calculations must be stated in a separate document attached to the notice; and.
- If any part-payments made by the debtor, or any other allowed reductions, the total amount of these deductions must be specified in a separate document attached to the notice.
The following outlines some circumstances where bankruptcy notice defects have not been serious enough to make them invalid:
- Failure to include the ACN of the company who is the creditor; and.
- The creditor’s address is listed as the address of their solicitors (assuming payment can be reasonably made to this address).
There are several other legal requirements that should be kept in mind. These include:
- The order or judgement must be at least $5,000, not including any post judgement interest being claimed by the creditor;.
- A bankruptcy notice can still be issued if the total amount is less than $5,000, provided that the total amount was more than $5,000 when the order or judgements were pronounced;.
- A bankruptcy notice must be based on a final judgement or order that is presently owing to a creditor under s 40( 3) of the Act. A final judgement is defined as a judgement which finally disposes of the rights of the parties involved;.
- A bankruptcy notice must be served with six months of its issue. The only exception is if the Official Receiver (reg 4.02 A) has increased this timeframe;.
- The final order or judgement must not be stayed both at the time of issue of the notice and the time of its service. If a stay of execution is granted after service, it has no bearing on the bankruptcy notice;.
- An overstatement of the amount claimed to be owed to a creditor does not revoke a bankruptcy notice, except if the debtor disputes the legitimacy of the notice in less than the timeframe for compliance (s 41( 5)); and.
- The order or judgment on which the bankruptcy notice is based can not be greater than 6 years old (s 41( 3)( c)).
Under what grounds could I counter-claim, set-off or cross demand?
To succeed using the grounds of counter-claim, set-off or cross demand, you will have to effectively demonstrate to the court the following two items:
- The counter-claim, set-off or cross demand is equal to or greater than the total amount claimed by the creditor in the bankruptcy notice. You must also satisfy the court that these claims are authenticated and have a realistic likelihood of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor attained the judgement on which the bankruptcy notice is based upon. Failure to take advantage of the opportunity to counter-claim, including any adversarial personal circumstances (like lack of evidence or legal advice), will not be sufficient.
What is an Abuse of process?
An abuse of process transpires if you can demonstrate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, rather than a legitimate effort by the creditor to invoke the court’s jurisdiction in relation to bankruptcy. If the former is true, then you will have the potential to set aside the bankruptcy notice resulting from an abuse of process. To be successful using these grounds, you will need to supply evidence of collateral purpose or unjustifiable pressure.
What If I think I have grounds to act on one of these items above?
If you think you have a case for one of the previously mentioned reasons to challenge your bankruptcy, you will need to get the following documents prepared, filed, and served to apply for your bankruptcy notice to be set aside:
- Application (Form B2); and.
You can find the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either make an application for a final order or an interim order.
Final orders must detail the ideal outcome you aspire to receive and the legislative basis which the court can grant this decision. An example of a final order may be: “That bankruptcy notice (BN00231) issued on 15 June 2017, which was served to me on 1 July 2017, be set aside under section 30( 1) of the Bankruptcy Act 1966.” You would also have to provide a copy of the bankruptcy notice with your application.
Conversely, an interim order must outline any outcomes you wish before the application is finally decided upon, and the legislative basis which the court can grant this decision. An example of an interim order might be: “The time for compliance with bankruptcy notice (BN00233) be increased up to and including 7 days after the outcome of this application by the Court under section 41( 6A) of the Bankruptcy Act 1966.”.
If you wish to make an application, it must be accompanied by an affidavit which states the grounds of your application as well as the date the bankruptcy notice was served to you. If you’ve already made an application to set aside the judgement of the bankruptcy notice, a copy of this application/s also needs to be attached. It’s very important that your affidavit must comply with rule 3.02 of the Rules, otherwise your application may be refused and your request for an extension of time to fulfill the bankruptcy notice may not be approved.
Filing your application.
As soon as your documents are finalised, they will need to be filed with the courts either online or personally at the Federal Circuit Court Registry.
There is a lodging fee that will need to be paid, however in certain circumstances you can apply for a waiver of this fee.
Serving your documents.
Once you’ve submitted your application and affidavit and they have been stamped, you must personally serve these documents to the creditor within three days after the documents have been filed.
If you are an individual, you must personally take the documents to the individual identified on the document and hand it to them. If they decide not to take the documents, the person serving them may put the document in the presence of the person to be served and verbally explain to the individual what the documents are.
If you are a company, you must personally go to a registered office of the business and present the documents to an individual servicing that company. You don’t need to give the documents to the businesses principal workplace, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that company’s registered addresses.
If you wish somebody else to serve the documents, you can get a bailiff of the court or a process server to serve the documents for a cost.
If you’re not sure whether you have grounds to set aside the bankruptcy notice, or you’re not sure whether you should devote the time and money to apply due to financial reasons, contact Bankruptcy Experts Dandenong on 1300 795 575 for free advice. Alternatively, you can visit our website for additional information: www.bankruptcyexpertsdandenong.com.au