If you have been given a bankruptcy notice or court order you must act right away to minimise future pain. Owing anyone money referred to here as a creditor, can be any person or organisation to whom you owe money. If you’re not able 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 limit to the level of money owing to creditors before they can speak to the AFSA, and the minimum amount is $5,000. As soon as the creditor has received a final judgment, AFSA will issue you with a bankruptcy notice.
It’s extremely important 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 expressed on the notice (normally 21 days); or
- Apply to the courts to ask for the bankruptcy notice be cancelled or set aside within the timeframe pronounced on the notice (normally 21 days).
Committing an act of bankruptcy means 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 lawfully bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice could be served to you in a range of ways; it could be validly served to you in person, by regular post, or hand delivered to your registered address. In special scenarios, a bankruptcy notice may be served in a digital format, either using email or fax.
If it’s not achievable for a creditor to serve a bankruptcy notice using any of the above means, a court order can be secured which enables 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 listed in the bankruptcy notice; or
- Negotiate an agreement with the creditor, for instance a payment plan over a specific time period. The creditor must accept the payment arrangements conditions. It’s always encouraged 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 Sunshine Coast on 1300 795 575 for a Free Consultation.
It’s important to note that all of these actions must be taken within the timeframe listed 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 cancelled or set aside. This must never be taken lightly though, given that if there are inadequate grounds to make an application then you will be obligated to pay all the creditors legal costs which only amplifies the debt you owe to them.
If you do apply for your bankruptcy notice to be set aside, it’s always a prudent idea to request that the court extends the timeframe for compliance with the bankruptcy notice, so you avoid committing an act of bankruptcy while the court processes your application. In other words, 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 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 substantiate that the debt claimed on your bankruptcy notice does not exist, you must 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 a convincing argument to do so. You must have already submitted the relevant documents with the court that handed down the order. Furthermore, you must have the ability to supply evidence to the Federal Circuit Court that displays that you have a genuine case for grounds of appeal.
Additionally, if you do not start 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 lengthen the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. As a result, 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 adhere to the requirements of the Act, in which case you may 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 invalid as these defects can be remedied at the discretion of the court under s 306( 1) of the Act.
Normally, the defect must be significant or lead to confusion over the actions you must take to abide by the bankruptcy notice for you to have the capability to set aside the bankruptcy notice.
There are some necessary requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will subsequently be invalid. The following details some examples where these necessary 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 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 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 detailed in a separate document attached to the notice.
The following describes some cases where bankruptcy notice defects have not been significant 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 more 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 exception 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, unless the debtor disputes the credibility 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 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 proficiently 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 authentic 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 upon. Failure to make use of the opportunity to counter-claim, including any adversarial personal circumstances (for instance lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process transpires if you can prove that the reasons behind the bankruptcy notice is to pressure you to pay a debt, as opposed to a real effort by the creditor to invoke the court’s jurisdiction in connection with insolvency. If the former is true, then you will have the opportunity 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 undue pressure.
What If I think I have grounds to act on one of these items above?
If you feel 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 so as 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 request a final order or an interim order.
Final orders need to illustrate the ideal outcome you want to receive and the legislative basis which the court can grant this decision. An example of a final order may 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.
Conversely, 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 grant this decision. An example of an interim order can 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 want to make an application, it must be accompanied by an affidavit which states the grounds of your application together 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 critical that your affidavit must adhere to rule 3.02 of the Rules, or else your application may be denied and your request for an extension of time to adhere to the bankruptcy notice may not be approved.
Filing your application.
After 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 specific circumstances 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 submitted.
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 take the documents, the person serving them may place the document in the presence of the person to be served and verbally tell the individual what the documents are.
If you are a company, you must personally visit a registered office of the organisation and hand over the documents to a person servicing that company. You don’t need to deliver the documents to the organisations principal place of business, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that businesses registered addresses.
If you wish someone 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 convinced whether you have grounds to set aside the bankruptcy notice, or you’re unconvinced whether you should devote the time and money to apply due to financial reasons, get in touch with Bankruptcy Experts Sunshine Coast on 1300 795 575 for free advice. Alternatively, you can visit our website for additional information: www.bankruptcyexpertssunshinecoast.com.au