If you have obtained a bankruptcy notice or court order you must act right away to minimise future suffering. Owing anybody money known here as a creditor, could be any person or organisation to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will call the Australian Financial Security Authority (AFSA) who will in turn issue a bankruptcy notice requesting payment of that money.
Obviously, there is a limit to the total amount of money owing to creditors before they can talk to the AFSA, and the minimum amount is $5,000. After the creditor has obtained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s critical that you take timely 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 presented on the notice (normally 21 days); or
– Apply to the courts to request the bankruptcy notice be cancelled or set aside inside the timeframe declared on the notice (normally 21 days).
Committing an act of bankruptcy indicates that you give your creditor the 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 variety of ways; it can be validly served to you directly, by regular post, or hand delivered to your registered address. In specific circumstances, a bankruptcy notice can be served in electronic format, either through email or fax.
If it’s not possible for a creditor to serve a bankruptcy notice using any of these means, a court order may be obtained which permits creditors to serve the bankruptcy notice in a separate 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 specified in the bankruptcy notice; or
- Organise an agreement with the creditor, for instance a payment plan over a specified time period. The creditor must accept the payment arrangements terms and conditions. It’s always advocated that the agreement is made in writing so you have evidence of the agreement.
- Get some bankruptcy advice. At this point, you must not delay and get some guidance. If you have a notice of bankruptcy, simply give us a ring here at Liquidation Service on 1300 795 575 for a Free Consultation.
It is very important 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 set aside or cancelled. This should not be taken lightly though, because if there are inadequate grounds to make an application then you will be obligated 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 good 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. To put it simply, 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 need 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 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 a genuine argument to do so. You must have already filed the proper documents with the court that handed down the order. Furthermore, you must be able to supply evidence to the Federal Circuit Court that shows that you have a legitimate case for grounds of appeal.
Further, if you do not commence 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 increase 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 arises when the creditor has failed to follow the requirements of the Act, in which case you might have grounds to request the bankruptcy notice to be set aside. Some defects are more severe than others, and not all defects will make a bankruptcy notice invalid as these defects can be addressed at the discretion of the court under s 306( 1) of the Act.
In most cases, the defect must be substantial or lead to confusion over the actions you must take to comply with the bankruptcy notice for you to have the capability 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 invalid. The following details some examples where these imperative 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 stipulated in an independent 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 detailed in a separate document attached to the notice.
The following details some circumstances where bankruptcy notice defects have not been serious 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 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 lower than $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 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 6 months of its issue. The only exception 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 invalidate a bankruptcy notice, unless the debtor contests the validity 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 succeed using the grounds of counter-claim, set-off or cross demand, you will need to proficiently demonstrate to the court the following two items:.
- The counter-claim, set-off or cross demand is equal to or in excess of 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 reasonable probability 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 unfavourable personal circumstances (such as lack of evidence or legal counsel), will not be adequate.
What is an Abuse of process?
An abuse of process results if you can prove that the reasons behind the bankruptcy notice is to pressure you to pay a debt, rather than an honest effort by the creditor to invoke the court’s jurisdiction in relation to insolvency. If the former is true, then you will have the opportunity to set aside the bankruptcy notice resulting from an abuse of process. To succeed using these grounds, you will need to supply evidence of collateral purpose or undue pressure.
What If I feel I have grounds to act on one of these items above?
If you feel you have a case for one of the previously mentioned reasons to dispute 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 request a final order or an interim order.
Final orders must outline the ideal outcome you wish to receive and the legislative basis which the court can approve 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 need to produce a copy of the bankruptcy notice with your application.
Conversely, an interim order has to illustrate 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 could 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 vital that your affidavit must adhere to rule 3.02 of the Rules, or else your application may be turned down and your request for an extension of time to adhere to 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 fee that will need to be paid, however in specific scenarios 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 lodged.
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 place the document in the presence of the person to be served and verbally announce to the individual what the documents entail.
If you are a business, you must personally go to a registered office of the business and present the documents to an individual servicing that company. You don’t have to give the documents to the company’s principal workplace, the Australian Securities and Investment Commission (ASIC) will supply you with a list of that businesses registered addresses.
If you would like 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 certain whether you have grounds to set aside the bankruptcy notice, or you’re uncertain whether you should invest the time and money to apply as a result of financial reasons, talk to Liquidation Service on 1300 795 575 for free advice. Alternatively, you can visit our website for additional information: www.liquidationservice.com.au