If you have been given a bankruptcy notice or court order you must take action rather quickly to minimise future pain. Owing anyone money known here as a creditor, may be any individual or company to whom you owe money. If you’re unable to pay money to a creditor, the creditor will consult with the Australian Financial Security Authority (AFSA) who will consequently dispense a bankruptcy notice demanding payment of that money.
Clearly, there is a limit to the amount of money owing to creditors before they can consult the AFSA, and the minimum amount is $5,000. Immediately after the creditor has gotten hold of 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 do not do any of the following:
- Satisfy the bankruptcy notice inside the requested timeframe declared 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 pronounced on the notice (normally 21 days).
Committing an act of bankruptcy suggests 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 could be served to you in several ways; it could be validly served to you directly, by regular post, or hand delivered to your registered address. In specific situations, a bankruptcy notice may be served in an electronic form, either via email or fax.
If it’s not possible for a creditor to serve a bankruptcy notice using any of these sources, a court order can be attained which makes it possible for creditors to serve the bankruptcy notice in a separate way.
I have a bankruptcy notice, now what?
To comply with a bankruptcy notice, you must do one of three things:
- You must pay in full the amount stipulated in the bankruptcy notice; or
- Organise an agreement with the creditor, for example a payment plan over a defined timeframe. The creditor must accept the payment arrangements conditions. It’s always recommended 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 help. If you have a notice of bankruptcy, simply give us a ring here at Bankruptcy Experts Port Stephens on 1300 795 575 for a Free Consultation.
It is necessary to note that all of these actions must be taken inside the timeframe stipulated 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 inadequate grounds to make an application then you will be responsible to pay all the creditors legal fees 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 clever idea to request that the court lengthens 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 volume 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 a convincing argument to do so. You must have already filed the relevant documents with the court that handed down the order. Additionally, you must have the capacity to present evidence to the Federal Circuit Court that demonstrates that you have a genuine case for grounds of appeal.
In addition, if you do not initiate 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 have the ability to extend the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. For that 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 results when the creditor has failed to fulfill the requirements of the Act, in which case you may 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 invalid as these defects can be repaired at the discretion of the court under s 306( 1) of the Act.
Generally speaking, the defect must be substantial or induce confusion over the actions you must take to follow the bankruptcy notice for you to have the ability 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 therefore be void. The following lists some examples where these fundamental 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 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 stated 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 details some cases where bankruptcy notice defects have not been serious 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 (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 less than $5,000, provided that the total amount was in excess of $5,000 when the order or judgements were pronounced;.
– A bankruptcy notice must be based 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 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 revoke a bankruptcy notice, except if the debtor challenges 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 6 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 greater than the total amount claimed by the creditor in the bankruptcy notice. You must also satisfy the court that these claims are genuine and have a realistic likelihood of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor received the judgement on which the bankruptcy notice is based upon. Failure to make use of the opportunity to counter-claim, including any adverse personal circumstances (like lack of evidence or legal counsel), will not be adequate.
What is an Abuse of process?
An abuse of process takes place if you can substantiate 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 option to set aside the bankruptcy notice due to an abuse of process. To succeed using these grounds, you will need to provide evidence of collateral purpose or inappropriate pressure.
What If I feel that 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 contest 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 make an application for a final order or an interim order.
Final orders need to 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 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 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 grant this decision. An example of an interim order might be: “The time for compliance with bankruptcy notice (BN00233) be increased 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 cites 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 paramount that your affidavit must fulfill rule 3.02 of the Rules, or else your application may be refused and your request for an extension of time to comply with 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 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 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 decide not to receive the documents, the person serving them may put the document in the presence of the individual to be served and verbally instruct the individual what the documents consist of.
If you are a company, you must personally visit a registered office of the company and deliver the documents to a person servicing that company. You don’t need to give the documents to the company’s principal place of business, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that organisations registered addresses.
If you prefer somebody 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 clear whether you have grounds to set aside the bankruptcy notice, or you’re unconvinced whether you should invest the time and money to apply resulting from financial reasons, get in contact with Bankruptcy Experts Port Stephens on 1300 795 575 for free advice. Additionally, you can visit our website for additional information: www.bankruptcyexpertsportstephens.com.au