If you have received a bankruptcy notice or court order you must take action rather quickly to prevent future grief. Owing someone money known here as a creditor, may be any person or company to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will contact the Australian Financial Security Authority (AFSA) who will consequently send a bankruptcy notice demanding payment of that money.
As expected, there is a limit to the volume of money owing to creditors before they can consult with the AFSA, and the minimum amount is $5,000. Once the creditor has attained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s vital 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 inside 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 described on the notice (normally 21 days).
Committing an act of bankruptcy signifies that you give your creditor the permission to apply to the Federal Circuit Court for a sequestration order, or in simple terms, an order that will make you lawfully bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice can be served to you in a variety of ways; it may be validly served to you personally, by normal post, or hand delivered to your registered address. In specific situations, a bankruptcy notice may be served in an electronic format, either using fax or email.
If it’s not practical for a creditor to serve a bankruptcy notice using any of these methods, a court order can be provided which permits 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 indicated in the bankruptcy notice; or
- Arrange an agreement with the creditor, for example a payment plan over a specified time period. The creditor must agree to the payment arrangements terms. It’s always advised 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 guidance. If you have a notice of bankruptcy, just call us here at Bankruptcy Experts Geraldton on 1300 795 575 for a Free Consultation.
It is very important 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 set aside or cancelled. This mustn’t be taken lightly though, because if there are unsatisfactory grounds to make an application then you will be under obligation to pay all the creditors legal fees which only expands 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 extends the timeframe for compliance with the bankruptcy notice, so you steer clear of committing an act of bankruptcy while the court processes your application. Essentially, 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 prove that the debt claimed on your bankruptcy notice does not exist, you need to deliver 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 supply evidence to the Federal Circuit Court that shows that you have a genuine case for grounds of appeal.
On top of that, if you do not start 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 this 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 satisfy 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 critical than others, and not all defects will make a bankruptcy notice void as these defects can be repaired at the discretion of the court under s 306( 1) of the Act.
In general, the defect must be serious or induce confusion over the actions you must take to follow the bankruptcy notice for you to have the opportunity to set aside the bankruptcy notice.
There are some important 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 should 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 specified 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 an independent document attached to the notice.
The following outlines 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 (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 below $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 exemption is if the Official Receiver (reg 4.02 A) has extended 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, unless the debtor challenges 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 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 legit and have a realistic possibility 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 upon. Failure to take advantage of the opportunity to counter-claim, including any detrimental personal circumstances (including lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process takes place if you can validate 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 regard to bankruptcy. If the former is true, then you will have the option to set aside the bankruptcy notice because of an abuse of process. To succeed 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 find that you have a case for one of the previously mentioned reasons to rebut 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 acquire a final order or an interim order.
Final orders must specify the ideal result you aspire to receive and the legislative basis which the court can grant 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 supply a copy of the bankruptcy notice with your application.
On the other hand, an interim order needs to detail 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 wish to make an application, it must be accompanied by an affidavit which specifies 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 important that your affidavit must follow rule 3.02 of the Rules, otherwise your application may be rejected and your request for an extension of time to comply with the bankruptcy notice may not be approved.
Filing your application.
When your documents are completed, 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 specific circumstances 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 filed.
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 receive the documents, the individual serving them may put 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 visit a registered office of the organisation and hand over the documents to an individual servicing that business. You don’t need to present the documents to the organisations principal workplace, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that businesses registered addresses.
If you would like another person to serve the documents, you can get a bailiff of the court or a process server to serve the documents for a cost.
If you’re not satisfied whether you have grounds to set aside the bankruptcy notice, or you’re unclear whether you should devote the time and money to apply as a result of financial reasons, talk to Bankruptcy Experts Geraldton on 1300 795 575 for free advice. Alternatively, you can visit our website for additional information: www.bankruptcyexpertsgeraldton.com.au