If you have been given a bankruptcy notice or court order you must act quickly to prevent future grief. Owing anyone money referred to here as a creditor, could be any individual or business to whom you owe money. If you’re unable to pay money to a creditor, the creditor will reach out to the Australian Financial Security Authority (AFSA) who will subsequently send a bankruptcy notice requesting payment of that money.
Typically, there is a limit to the level of money owing to creditors before they can consult with the AFSA, and the minimum amount is $5,000. Immediately after the creditor has obtained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s integral 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:
- Fulfill the bankruptcy notice inside the requested timeframe pronounced on the notice (normally 21 days); or
- Apply to the courts to ask for the bankruptcy notice be cancelled or set aside within the timeframe mentioned 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 to put it simply, an order that will make you legally bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice could be served to you in a range of ways; it can be validly served to you directly, by normal post, or hand delivered to your registered address. In some scenarios, a bankruptcy notice can be served digitally, either using fax or email.
If it’s not possible for a creditor to serve a bankruptcy notice using any of the above methods, a court order may be secured which enables creditors to serve the bankruptcy notice in a different way.
I have a bankruptcy notice, now what?
To adhere to a bankruptcy notice, you must do one of three things:
- You must pay in full the amount stipulated in the bankruptcy notice; or
- Establish an agreement with the creditor, such as a payment plan over a certain timeframe. The creditor must accept the payment arrangements terms. It’s always suggested that the agreement is made in writing so you have evidence of the agreement.
- Get some insolvency advice. At this point, you must not delay and get some advice. If you have a notice of bankruptcy, simply give us a ring here at Bankruptcy Experts Taree on 1300 795 575 for a Free Consultation.
It is essential to note that all of these actions must be taken within the timeframe set out 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 cancelled or set aside. This mustn’t be taken lightly however, since if there are unsatisfactory grounds to make an application then you will be under obligation to pay all the creditors legal costs 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 practical idea to request that the court extends the timeframe for compliance with the bankruptcy notice, so you keep away from committing an act of bankruptcy while the court processes your application. Basically, don’t leave it to the eleventh hour.
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 sum 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 provide 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 a genuine argument to do so. You must have already submitted the relevant documents with the court that handed down the order. Additionally, you must have the capacity to present evidence to the Federal Circuit Court that displays that you have an authentic case for grounds of appeal.
On top of that, if you do not initiate the process of setting aside the judgement or order prior to filing your application to set aside the bankruptcy notice, the Federal Circuit Court will not have the ability to lengthen the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. For that reason, 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 happens when the creditor has failed to satisfy the requirements of the Act, in which case you may have grounds to request the bankruptcy notice to be set aside. Some defects are more critical than others, and not all defects will make a bankruptcy notice void as these defects can be mended at the discretion of the court under s 306( 1) of the Act.
Typically, the defect must be significant or cause confusion over the actions you must take to fulfill the bankruptcy notice for you to have the capacity to set aside the bankruptcy notice.
There are some fundamental requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will consequently be void. The following lists some examples where these imperative requirements have not been met:
- The creditor’s address on the bankruptcy notice must 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 specified 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 stipulated in a separate document attached to the notice.
The following specifies some situations where bankruptcy notice defects have not been significant enough to make them void:
- 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 born 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 below $5,000, provided that the total amount was greater than $5,000 when the order or judgements were pronounced;
- A bankruptcy notice must be formed on a final judgement or order that is currently 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 6 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 disqualify a bankruptcy notice, except if the debtor challenges the credibility 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 more than 6 years old (s 41( 3)( c)).
Under what grounds could I counter-claim, set-off or cross demand?
To be successful using the grounds of counter-claim, set-off or cross demand, you will have to successfully 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 certified and have a realistic chance of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor acquired the judgement on which the bankruptcy notice is based on. Failure to capitalise on the opportunity to counter-claim, including any negative personal circumstances (for instance lack of evidence or legal advice), will not suffice.
What is an Abuse of process?
An abuse of process takes place if you can demonstrate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, instead of a legitimate effort by the creditor to invoke the court’s jurisdiction in connection with insolvency. If the former holds true, then you will have the potential to set aside the bankruptcy notice as a result of an abuse of process. To succeed using these grounds, you will need to produce evidence of collateral purpose or excessive 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 abovementioned reasons to rebut your bankruptcy, you will need to get the following documents prepared, filed, and served in order 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 secure a final order or an interim order.
Final orders need to describe the ideal outcome you wish to receive and the legislative basis which the court can grant this decision. An example of a final order might 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 supply a copy of the bankruptcy notice with your application.
Conversely, an interim order should illustrate any outcomes you wish before the application is finally decided upon, and the legislative basis which the court can approve this decision. An example of an interim order could be: “The time for compliance with bankruptcy notice (BN00233) be extended 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 cites the grounds of your application coupled with 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 extremely important that your affidavit must abide by rule 3.02 of the Rules, otherwise your application may be denied and your request for an extension of time to satisfy the bankruptcy notice may not be granted.
Filing your application.
After your documents are finalised, they will need to be filed with the courts either online or in person at the Federal Circuit Court Registry.
There is a lodging fee that will need to be paid, however in various situations 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 3 days after the documents have been submitted.
If you are an individual, you must personally take the documents to the individual identified on the document and give it to them. If they choose not to take the documents, the person serving them may put the document in the presence of the individual to be served and verbally instruct the person what the documents are.
If you are a business, you must personally visit a registered office of the company and deliver the documents to a person servicing that organisation. You don’t have to deliver the documents to the company’s principal workplace, the Australian Securities and Investment Commission (ASIC) will supply you with a list of that company’s registered addresses.
If you would prefer someone else to serve the documents, you can get a bailiff of the court or a process server to serve the documents for a fee.
If you’re not confident whether you have grounds to set aside the bankruptcy notice, or you’re skeptical whether you should devote the time and money to apply due to financial reasons, contact Bankruptcy Experts Taree on 1300 795 575 for free advice. Additionally, you can visit our website for additional information: www.bankruptcyexpertstaree.com.au