If you have acquired a bankruptcy notice or court order you must respond rather quickly to reduce future distress. Owing someone money referred to here as a creditor, may be any individual or organisation to whom you owe money. If you’re not able to pay money to a creditor, the creditor will consult the Australian Financial Security Authority (AFSA) who will subsequently send a bankruptcy notice demanding payment of that money.
Not surprisingly, there is a limit to the amount of money owing to creditors before they can connect with the AFSA, and the minimum amount is $5,000. Immediately after the creditor has acquired a final judgment, AFSA will issue you with a bankruptcy notice.
It’s imperative that you take swift action if you receive a bankruptcy notice from the AFSA. You will commit an ‘act of bankruptcy’ if you fail to do any of the following:
- Abide by the bankruptcy notice in less than the requested timeframe declared on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside in less than the timeframe pronounced on the notice (normally 21 days).
Committing an act of bankruptcy indicates that you give your creditor authorisation to apply to the Federal Circuit Court for a sequestration order, or in other words, 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 variety of ways; it could be validly served to you personally, by ordinary post, or hand delivered to your registered address. In a number of scenarios, a bankruptcy notice may be served digitally, either using email or fax.
If it’s not attainable for a creditor to serve a bankruptcy notice using any of the above sources, a court order may be obtained which makes it possible for creditors to serve the bankruptcy notice in a different way.
I have a bankruptcy notice, now what?
To comply with a bankruptcy notice, you must do one of three things:
- You must pay in full the amount cited in the bankruptcy notice; or
- Negotiate an agreement with the creditor, for instance a payment plan over a specified period. The creditor must agree to the payment arrangements terms. It’s always advised that the agreement is made in writing so you have documentation of the agreement.
- Get some bankruptcy advice. At this point, you must not delay and get some help. If you have a notice of bankruptcy, just phone us here at Bankruptcy Experts Dubbo on 1300 795 575 for a Free Consultation.
It’s important 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 justified, you can apply to the court to have the bankruptcy notice cancelled or set aside. This must never be taken lightly however, because if there are inadequate grounds to make an application then you will be accountable to pay all the creditors legal fees which only bloats the debt you owe to them.
If you do apply for your bankruptcy notice to be set aside, it’s always a sensible idea to request that the court extends the timeframe for compliance with the bankruptcy notice, so you avoid committing an act of bankruptcy while the court processes your application. Simply put, 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 amount 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 prove that the debt claimed on your bankruptcy notice does not exist, you must present evidence that:
- You have in fact paid the creditor the amount owing under the order or judgement; or
- You have appealed the order by commencing 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 appropriate documents with the court that handed down the order. Furthermore, you must have the ability to present evidence to the Federal Circuit Court that indicates that you have a genuine case for grounds of appeal.
On top of that, if you do not commence 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 be able 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 results when the creditor has failed to obey 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 weighty 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.
Usually, the defect must be serious or result in confusion over the actions you must take to abide by the bankruptcy notice for you to have the opportunity to set aside the bankruptcy notice.
There are some imperative requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will ultimately be void. The following provides some examples where these necessary requirements have not been met:
– The creditor’s address on the bankruptcy notice has to 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 itemised 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 stated in a separate document attached to the notice.
The following specifies some circumstances where bankruptcy notice defects have not been significant 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 (presuming payment can be reasonably made to this address).
There are several other legal requirements that should be noted. 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 founded 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 challenges the credibility of the notice within 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 be successful using the grounds of counter-claim, set-off or cross demand, you will have to proficiently 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 legitimate and have a reasonable possibility of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor received the judgement on which the bankruptcy notice is based upon. Failure to capitalise on the opportunity to counter-claim, including any adversarial personal circumstances (for instance lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process materialises if you can validate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, instead of an honest effort by the creditor to invoke the court’s jurisdiction in relation to insolvency. If the former holds true, then you will have the potential to set aside the bankruptcy notice because of an abuse of process. To succeed using these grounds, you will need to provide evidence of collateral purpose or inappropriate pressure.
What If I think I have grounds to act on one of these items above?
If you feel you have a case for one of the abovementioned reasons to contest your bankruptcy, you will need to get the following documents prepared, filed, and served if you want to apply for your bankruptcy notice to be set aside:
- Application (Form B2); and.
You can get the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either request a final order or an interim order.
Final orders have to outline the ideal result you want 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.
Alternatively, an interim order has to describe 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 might be: “The time for compliance with bankruptcy notice (BN00233) be lengthened 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 want to make an application, it must be accompanied by an affidavit which details the grounds of your application along 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 important that your affidavit must fulfill rule 3.02 of the Rules, or else your application may be refused and your request for an extension of time to comply with the bankruptcy notice may not be granted.
Filing your application.
After your documents are completed, 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 situations you can apply for a waiver of this fee.
Serving your documents.
Once you’ve lodged 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 lodged.
If you are an individual, you must personally take the documents to the person identified on the document and hand it to them. If they choose not to receive the documents, the individual serving them may put the document in the presence of the individual to be served and verbally tell the person what the documents are.
If you are a company, you must personally go to a registered office of the company and deliver the documents to an individual servicing that business. You don’t need to deliver the documents to the businesses principal place of business, the Australian Securities and Investment Commission (ASIC) will supply you with a list of that businesses 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 fee.
If you’re not certain whether you have grounds to set aside the bankruptcy notice, or you’re uncertain whether you should spend the time and money to apply due to financial reasons, talk with Bankruptcy Experts Dubbo on 1300 795 575 for free advice. Alternatively, you can visit our website for additional information: www.bankruptcyexpertsdubbo.com.au