Everything you will need to know about Bankruptcy Notices
If you have been given a bankruptcy notice or court order you must act immediately to prevent future distress. Owing someone else money referred to here as a creditor, can be any person or business to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will consult the Australian Financial Security Authority (AFSA) who will in turn deliver a bankruptcy notice requesting payment of that money.
Of course, there is a threshold to the quantity of money owing to creditors before they can speak with the AFSA, and the minimum amount is $5,000. Soon after the creditor has gotten hold of a final judgment, AFSA will issue you with a bankruptcy notice.
It’s extremely important 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:
- Abide by the bankruptcy notice inside the requested timeframe mentioned on the notice (normally 21 days); or
- Apply to the courts to ask for the bankruptcy notice be cancelled or set aside inside the timeframe reported on the notice (normally 21 days).
Committing an act of bankruptcy indicates that you give your creditor permission 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 could be served to you in a couple of ways; it may be validly served to you in person, by ordinary post, or hand delivered to your registered address. In several circumstances, a bankruptcy notice may be served in an electronic form, either through email or fax.
If it’s not attainable for a creditor to serve a bankruptcy notice using any of these means, a court order may be acquired which makes it possible for creditors to serve the bankruptcy notice in a different 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 stipulated in the bankruptcy notice; or
- Set up an agreement with the creditor, such as a payment plan over a defined time period. The creditor must accept the payment arrangements terms and conditions. It’s always advised that the agreement is made in writing so you have documentation of the agreement.
- Get some insolvency advice. At this point, you must not delay and get some assistance. If you have a notice of bankruptcy, just give us a call here at Bankruptcy Experts Tamworth on 1300 795 575 for a Free Consultation.
It is necessary to note that all of these actions must be taken within the timeframe stipulated 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 should not be taken lightly though, given that if there are inadequate grounds to make an application then you will be liable to pay all the creditors legal costs which only increases 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 keep away from committing an act of bankruptcy while the court processes your application. In short, 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 establish that the debt claimed on your bankruptcy notice does not exist, you will need 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 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 a persuasive argument to do so. You must have already submitted the applicable documents with the court that handed down the order. Further, you must have the ability to provide evidence to the Federal Circuit Court that reveals that you have a genuine 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 extend 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 obey the requirements of the Act, in which case you might have grounds to apply 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 mended at the discretion of the court under s 306( 1) of the Act.
In general, the defect must be serious or inflict confusion over the actions you must take to abide by 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 invalid. The following details some examples where these essential 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 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 specified in a separate document attached to the notice.
The following specifies some scenarios 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 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 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 based 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 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 annul a bankruptcy notice, except if the debtor contests the credibility of the notice inside 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 need to properly demonstrate to the court the following two items:
- The counter-claim, set-off or cross demand is equal to or more 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 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 on. Failure to capitalise on the opportunity to counter-claim, including any adversarial personal circumstances (including lack of evidence or legal counsel), will not be adequate.
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, instead of a legitimate effort by the creditor to invoke the court’s jurisdiction in regard to insolvency. If the former is true, then you will have the option to set aside the bankruptcy notice caused by an abuse of process. To be successful using these grounds, you will need to supply evidence of collateral purpose or excessive pressure.
What If I believe I have grounds to act on one of these items above?
If you feel that you have a case for one of the previously mentioned reasons to contest your bankruptcy, you will need to get the following documents prepared, filed, and served for you to apply for your bankruptcy notice to be set aside:
- Application (Form B2); and.
You can locate the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either obtain a final order or an interim order.
Final orders have to describe the ideal result you aspire to receive and the legislative basis which the court can approve 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 present a copy of the bankruptcy notice with your application.
Alternatively, an interim order needs to 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 could 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 intend to make an application, it must be accompanied by an affidavit which cites 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 essential that your affidavit must fulfill rule 3.02 of the Rules, otherwise your application may be refused and your request for an extension of time to follow 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 personally at the Federal Circuit Court Registry.
There is a lodging fee that will need to be paid, however in some 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 give it to them. If they decide not to receive the documents, the person serving them may place the document in the presence of the person to be served and verbally instruct the individual what the documents consist of.
If you are an organisation, you must personally go to a registered office of the company and hand the documents to a person servicing that organisation. You don’t need to present the documents to the company’s principal address, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that organisations registered addresses.
If you would prefer 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 sure whether you have grounds to set aside the bankruptcy notice, or you’re unsure whether you should spend the time and money to apply because of financial reasons, speak to Bankruptcy Experts Tamworth on 1300 795 575 for free advice. Alternatively, you can visit our website for more information: www.bankruptcyexpertstamworth.com.au