If you have been given a bankruptcy notice or court order you must respond right away to avoid future grief. Owing anybody money referred to 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 talk to the Australian Financial Security Authority (AFSA) who will in turn dispense a bankruptcy notice demanding payment of that money.
As you would expect, there is a threshold to the quantity of money owing to creditors before they can call the AFSA, and the minimum amount is $5,000. Once the creditor has received a final judgment, AFSA will issue you with a bankruptcy notice.
It’s essential that you take prompt 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 specified on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside within the timeframe specified on the notice (normally 21 days).
Committing an act of bankruptcy signifies that you give your creditor the authorisation to apply to the Federal Circuit Court for a sequestration order, or in other words, 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 couple of ways; it could be validly served to you personally, by regular post, or hand delivered to your registered address. In certain circumstances, a bankruptcy notice can be served in an electronic form, either via fax or email.
If it’s not conceivable for a creditor to serve a bankruptcy notice using any of these means, a court order may be provided which enables creditors to serve the bankruptcy notice in a separate way.
I have a bankruptcy notice, now what?
To adhere to a bankruptcy notice, you must do one of three things:
- You must pay in full the amount indicated in the bankruptcy notice; or
- Organise an agreement with the creditor, such as a payment plan over a specific period. The creditor must accept the payment arrangements terms. It’s always recommended 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, just contact us here at Bankruptcy Experts Lismore on 1300 795 575 for a Free Consultation.
It’s important to note that all of these actions must be taken within the timeframe mentioned 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 must not be taken lightly however, 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 escalates 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 prolongs the timeframe for compliance with the bankruptcy notice, so you steer clear of committing an act of bankruptcy while the court processes your application. Simply put, 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 will need to produce 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 convincing argument to do so. You must have already filed the appropriate documents with the court that handed down the order. Along with this, you must have the capacity to provide evidence to the Federal Circuit Court that displays that you have a legitimate case for grounds of appeal.
Likewise, 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 be able 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 appears when the creditor has failed to fulfill 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 weighty than others, and not all defects will make a bankruptcy notice void as these defects can be amended at the discretion of the court under s 306( 1) of the Act.
In most cases, the defect must be substantial or induce confusion over the actions you must take to fulfill the bankruptcy notice for you to have the ability to set aside the bankruptcy notice.
There are some essential requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will consequently be invalid. The following lists some examples where these important 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 outlined 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 an independent document attached to the notice.
The following lists some cases 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 (assuming payment can be reasonably made to this address).
There are several other legal requirements that should be considered. 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 upon 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 exemption 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 undermine a bankruptcy notice, except if the debtor disputes the credibility 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 have 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 likelihood 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 on. Failure to take advantage of the opportunity to counter-claim, including any detrimental personal circumstances (for instance lack of evidence or legal advice), will not suffice.
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 insolvency. 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 provide evidence of collateral purpose or unwarranted 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 challenge your bankruptcy, you will need to get the following documents prepared, filed, and served if you want to apply for your bankruptcy notice to be set aside:.
- Application (Form B2); and.
You can get the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either apply for a final order or an interim order.
Final orders must outline the ideal result you wish 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 present a copy of the bankruptcy notice with your application.
Alternatively, an interim order should specify 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 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 wish to make an application, it must be accompanied by an affidavit which outlines the grounds of your application along 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 very important that your affidavit must satisfy rule 3.02 of the Rules, or else your application may be refused and your request for an extension of time to satisfy the bankruptcy notice may not be approved.
Filing your application.
As soon as your documents are completed, 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 various circumstances 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 filed.
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 receive the documents, the individual serving them may place the document in the presence of the individual to be served and verbally advise the individual what the documents consist of.
If you are an organisation, you must personally go to a registered office of the organisation and hand the documents to an individual servicing that organisation. You don’t have to deliver the documents to the businesses principal address, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that businesses registered addresses.
If you want 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 unconvinced whether you should invest the time and money to apply due to financial reasons, get in contact with Bankruptcy Experts Lismore on 1300 795 575 for free advice. Additionally, you can visit our website for more information: www.bankruptcyexpertslismore.com.au