Everything you must know about Bankruptcy Notices
If you have received a bankruptcy notice or court order you must take action right away to reduce future pain. Owing anyone money referred to here as a creditor, may be any person or business to whom you owe money. If you’re unable to pay money to a creditor, the creditor will consult the Australian Financial Security Authority (AFSA) who will consequently dispense a bankruptcy notice requesting payment of that money.
As expected, there is a threshold to the total amount of money owing to creditors before they can get in touch with the AFSA, and the minimum amount is $5,000. After the creditor has received a final judgment, AFSA will issue you with a bankruptcy notice.
It’s imperative that you take immediate 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:
- Adhere to the bankruptcy notice within the requested timeframe stated 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 specified on the notice (normally 21 days).
Committing an act of bankruptcy indicates 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 several ways; it may be validly served to you directly, by regular post, or hand delivered to your registered address. In a number of circumstances, a bankruptcy notice could be served electronically, either using email or fax.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of the above methods, a court order may be secured which allows creditors to serve the bankruptcy notice in a separate 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 stated in the bankruptcy notice; or
- Work out an agreement with the creditor, for example a payment plan over a defined time period. The creditor must accept the payment arrangements conditions. It’s always suggested that the agreement is made in writing so you have proof of the agreement.
- Get some insolvency advice. At this point, you must not delay and get some guidance. If you have a notice of bankruptcy, simply phone us here at Bankruptcy Experts Geelong on 1300 795 575 for a Free Consultation.
It is crucial to note that all of these actions must be taken within the timeframe stated 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 set aside or cancelled. This must not be taken lightly however, given that if there are insufficient grounds to make an application then you will be subject 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 practical idea to request that the court prolongs the timeframe for compliance with the bankruptcy notice, so you stay clear of committing an act of bankruptcy while the court processes your application. Essentially, 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 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 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 filed the appropriate documents with the court that handed down the order. Furthermore, you must have the capacity to provide evidence to the Federal Circuit Court that establishes that you have a genuine case for grounds of appeal.
Moreover, if you do not initiate 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 ability to extend the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. Consequently, 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 satisfy 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 arduous than others, and not all defects will make a bankruptcy notice void as these defects can be remedied at the discretion of the court under s 306( 1) of the Act.
Generally, the defect must be substantial or cause confusion over the actions you must take to satisfy 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 consequently be invalid. The following provides 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 cited 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 stated in a separate document attached to the notice.
The following specifies some circumstances where bankruptcy notice defects have not been considerable 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 below $5,000, provided that the total amount was higher 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 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 disqualify a bankruptcy notice, except if the debtor disputes 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 be successful using the grounds of counter-claim, set-off or cross demand, you will need 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 reasonable chance 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 make use of the opportunity to counter-claim, including any unfavourable 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 a real effort by the creditor to invoke the court’s jurisdiction in relation to bankruptcy. If the former holds true, then you will have the option to set aside the bankruptcy notice resulting from an abuse of process. To succeed using these grounds, you will need to deliver evidence of collateral purpose or unwarranted 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 contest your bankruptcy, you will need to get the following documents prepared, filed, and served 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 make an application for a final order or an interim order.
Final orders have to detail the ideal outcome you aspire to receive and the legislative basis which the court can approve this decision. An example of a final order can 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 provide a copy of the bankruptcy notice with your application.
Alternatively, an interim order needs to specify 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 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 want to make an application, it must be accompanied by an affidavit which specifies 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 essential that your affidavit must fulfill rule 3.02 of the Rules, otherwise your application may be rejected and your request for an extension of time to abide by the bankruptcy notice may not be approved.
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 some 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 filed.
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 refuse to take the documents, the person serving them may put the document in the presence of the individual to be served and verbally explain to the individual what the documents consist of.
If you are a business, you must personally go to a registered office of the organisation and hand the documents to a person servicing that business. You don’t need to present the documents to the businesses principal workplace, the Australian Securities and Investment Commission (ASIC) will supply you with a list of that organisations registered addresses.
If you prefer another person 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 doubtful whether you should devote the time and money to apply resulting from financial reasons, get in touch with Bankruptcy Experts Geelong on 1300 795 575 for free advice. Alternatively, you can visit our website for additional details: www.bankruptcyexpertsgeelong.com.au