If you have acquired a bankruptcy notice or court order you must respond promptly to avoid future suffering. Owing someone money known here as a creditor, could be any individual or organisation to whom you owe money. If you’re unable to pay money to a creditor, the creditor will talk to the Australian Financial Security Authority (AFSA) who will consequently send a bankruptcy notice demanding payment of that money.
Not surprisingly, there is a threshold to the total amount of money owing to creditors before they can speak to the AFSA, and the minimum amount is $5,000. Immediately after the creditor has received a final judgment, AFSA will issue you with a bankruptcy notice.
It’s important that you take prompt 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 within the requested timeframe specified on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside inside the timeframe reported on the notice (normally 21 days).
Committing an act of bankruptcy means that you give your creditor permission 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 couple of ways; it could be validly served to you personally, by regular post, or hand delivered to your registered address. In specific scenarios, a bankruptcy notice could be served in a digital format, either through email or fax.
If it’s not possible for a creditor to serve a bankruptcy notice using any of these sources, a court order can be obtained which permits creditors to serve the bankruptcy notice in a different way.
I have a bankruptcy notice, now what?
To satisfy a bankruptcy notice, you must do one of three things:
- You must pay in full the amount cited in the bankruptcy notice; or
- Arrange an agreement with the creditor, such as a payment plan over a certain period. The creditor must accept the payment arrangements conditions. It’s always suggested that the agreement is made in writing so you have confirmation 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 call us here at Bankruptcy Experts Perth on 1300 795 575 for a Free Consultation.
It is crucial to note that all of these actions must be taken inside the timeframe mentioned 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 should not be taken lightly however, given that if there are unsatisfactory grounds to make an application then you will be liable to pay all the creditors legal fees which only raises the debt you owe to them.
If you do apply for your bankruptcy notice to be set aside, it’s always a smart idea to request that the court lengthens the timeframe for compliance with the bankruptcy notice, so you evade committing an act of bankruptcy while the court processes your application. Basically, 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 volume 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 establish that the debt claimed on your bankruptcy notice does not exist, you have to 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 initiating 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 filed the relevant documents with the court that handed down the order. Additionally, you must be able to present evidence to the Federal Circuit Court that displays that you have an authentic case for grounds of appeal.
Moreover, if you do not start 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 have the capacity 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 obey the requirements of the Act, in which case you might 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 addressed at the discretion of the court under s 306( 1) of the Act.
Normally, the defect must be significant or induce confusion over the actions you must take to adhere to the bankruptcy notice for you to have the opportunity to set aside the bankruptcy notice.
There are some critical requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will subsequently be invalid. The following provides some examples where these vital requirements have not been met:
- The creditor’s address on the bankruptcy notice needs to make it reasonably practicable for the debtor to make payment (e.g. PO Boxes may not be suitable);.
- 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 detailed 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 an independent document attached to the notice.
The following lists some situations where bankruptcy notice defects have not been substantial 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 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 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 exemption is if the Official Receiver (reg 4.02 A) has lengthened 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 undermine 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 more than six 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 authenticated and have a reasonable 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 adversarial personal circumstances (including lack of evidence or legal advice), will not suffice.
What is an Abuse of process?
An abuse of process materialises if you can substantiate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, in contrast to an honest effort by the creditor to invoke the court’s jurisdiction in connection with bankruptcy. If the former holds true, then you will have the opportunity to set aside the bankruptcy notice resulting from an abuse of process. To be successful using these grounds, you will need to present evidence of collateral purpose or unwarranted pressure.
What If I feel that 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 so as 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 apply for a final order or an interim order.
Final orders have to illustrate the ideal outcome you want to receive and the legislative basis which the court can approve this decision. An example of a final order could 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 need to present a copy of the bankruptcy notice with your application.
On the other hand, an interim order must specify 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 may be: “The time for compliance with bankruptcy notice (BN00233) be prolonged 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 intend to make an application, it must be accompanied by an affidavit which cites the grounds of your application in conjunction 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 imperative that your affidavit must abide by 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.
When your documents are finalised, they will need to be filed with the courts either online or face to face at the Federal Circuit Court Registry.
There is a lodging charge that will need to be paid, however in some circumstances you can apply for a waiver of this fee.
Serving your documents.
Once you’ve filed 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 hand it to them. If they refuse to take the documents, the person serving them may place the document in the presence of the individual to be served and verbally advise the person what the documents consist of.
If you are a business, you must personally go to a registered office of the organisation and deliver the documents to an individual servicing that organisation. You don’t need to give the documents to the organisations principal place of business, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that company’s registered addresses.
If you want 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 clear whether you have grounds to set aside the bankruptcy notice, or you’re unsure whether you should invest the time and money to apply because of financial reasons, talk to Bankruptcy Experts Perth on 1300 795 575 for free advice. As an alternative, you can visit our website for additional details: www.bankruptcyexpertsperth.com.au