If you have obtained a bankruptcy notice or court order you must respond immediately to prevent future grief. Owing anyone money regarded 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 reach out to the Australian Financial Security Authority (AFSA) who will consequently dispense a bankruptcy notice requesting payment of that money.
Typically, there is a threshold to the total amount of money owing to creditors before they can phone the AFSA, and the minimum amount is $5,000. When the creditor has acquired a final judgment, AFSA will issue you with a bankruptcy notice.
It’s integral 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:
- Comply with the bankruptcy notice in less than the requested timeframe mentioned on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside within the timeframe described on the notice (normally 21 days).
Committing an act of bankruptcy implies that you give your creditor the authority to apply to the Federal Circuit Court for a sequestration order, or simply put, an order that will make you lawfully bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice may be served to you in a number of ways; it could be validly served to you directly, by normal post, or hand delivered to your registered address. In some circumstances, a bankruptcy notice could be served in an electronic format, either using email or fax.
If it’s not feasible for a creditor to serve a bankruptcy notice using any of these methods, a court order can be provided which makes it possible for 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 stipulated in the bankruptcy notice; or
- Work out an agreement with the creditor, for example a payment plan over a certain period of time. The creditor must agree to the payment arrangements terms and conditions. It’s always encouraged that the agreement is made in writing so you have proof of the agreement.
- Get some bankruptcy advice. At this point, you must not delay and get some advice. If you have a notice of bankruptcy, simply phone us here at Bankruptcy Experts Maitland 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 laid out 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 should not be taken lightly however, simply because if there are insufficient grounds to make an application then you will be accountable to pay all the creditors legal fees 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 clever idea to request that the court extends the timeframe for compliance with the bankruptcy notice, so you avert 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 will 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 an authentic argument to do so. You must have already submitted the proper documents with the court that handed down the order. Along with this, you must be able to supply evidence to the Federal Circuit Court that reveals that you have an authentic case for grounds of appeal.
Further, 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 capacity to extend 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 occurs when the creditor has failed to comply with 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 serious than others, and not all defects will make a bankruptcy notice invalid as these defects can be mended at the discretion of the court under s 306( 1) of the Act.
Usually, the defect must be significant or result in confusion over the actions you must take to fulfill 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 subsequently be void. The following provides some examples where these important requirements have not been met:
- The creditor’s address on the bankruptcy notice has to 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 itemised 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 detailed in an independent document attached to the notice.
The following specifies some situations where bankruptcy notice defects have not been considerable 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 kept 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 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 founded 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 exception 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, except if the debtor contests the validity of the notice within the timeframe for compliance (s 41( 5)); and.
- The order or judgment on which the bankruptcy notice is based can not be greater 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 effectively 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 legitimate and have a realistic probability of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor secured the judgement on which the bankruptcy notice is based upon. Failure to capitalise on the opportunity to counter-claim, including any damaging personal circumstances (for example lack of evidence or legal advice), will not be adequate.
What is an Abuse of process?
An abuse of process arises if you can establish 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 chance to set aside the bankruptcy notice as a result of an abuse of process. To be successful using these grounds, you will need to produce evidence of collateral purpose or undue pressure.
What If I think I have grounds to act on one of these items above?
If you find that you have a case for one of the abovementioned reasons to challenge 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 locate the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either secure a final order or an interim order.
Final orders must outline 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 have to produce a copy of the bankruptcy notice with your application.
On the contrary, an interim order has 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 may be: “The time for compliance with bankruptcy notice (BN00233) be extended 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 stipulates 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 paramount that your affidavit must follow rule 3.02 of the Rules, or else your application may be declined and your request for an extension of time to abide by the bankruptcy notice may not be granted.
Filing your application.
When your documents are finished, they will need to be filed with the courts either online or in person at the Federal Circuit Court Registry.
There is a lodging charge 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 filed 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 submitted.
If you are an individual, you must personally take the documents to the person identified on the document and hand 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 person what the documents are.
If you are a company, you must personally visit a registered office of the company and deliver the documents to an individual servicing that business. You don’t need to present the documents to the company’s principal business, the Australian Securities and Investment Commission (ASIC) will provide 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 cost.
If you’re not convinced whether you have grounds to set aside the bankruptcy notice, or you’re unclear whether you should devote the time and money to apply resulting from financial reasons, talk to Bankruptcy Experts Maitland on 1300 795 575 for free advice. Alternatively, you can visit our website for additional details: www.bankruptcyexpertsmaitland.com.au