If you have received a bankruptcy notice or court order you must respond quickly to minimise future grief. Owing someone else money known here as a creditor, could be any person or business to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will consult with the Australian Financial Security Authority (AFSA) who will consequently dispense a bankruptcy notice requesting payment of that money.
As expected, there is a threshold to the total amount of money owing to creditors before they can approach the AFSA, and the minimum amount is $5,000. Soon after the creditor has attained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s extremely important that you take swift 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:
- Fulfill the bankruptcy notice inside the requested timeframe specified 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 reported on the notice (normally 21 days).
Committing an act of bankruptcy signifies that you give your creditor the authority 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 directly, by normal post, or hand delivered to your registered address. In a number of circumstances, a bankruptcy notice may be served in a digital form, either by means of email or fax.
If it’s not practical for a creditor to serve a bankruptcy notice using any of the above methods, a court order may be secured which allows 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 defined in the bankruptcy notice; or
- Negotiate an agreement with the creditor, for instance a payment plan over a defined 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 help. If you have a notice of bankruptcy, simply contact us here at Bankruptcy Experts Darwin on 1300 795 575 for a Free Consultation.
It is essential to note that all of these actions must be taken inside the timeframe reported 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, simply because if there are inadequate grounds to make an application then you will be obligated to pay all the creditors legal fees which only enlarges the debt you owe to them.
If you do apply for your bankruptcy notice to be set aside, it’s always a wise idea to request that the court extends the timeframe for compliance with the bankruptcy notice, so you stay 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 sum 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 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 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 proper documents with the court that handed down the order. Further, you must be able to supply evidence to the Federal Circuit Court that displays that you have an authentic case for grounds of appeal.
On top of that, if you do not commence 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. Consequently, 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 apply 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 fixed at the discretion of the court under s 306( 1) of the Act.
Commonly, the defect must be substantial or create confusion over the actions you must take to satisfy the bankruptcy notice for you to have the capability 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 subsequently be invalid. The following provides some examples where these important 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 stated 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 specifies some scenarios where bankruptcy notice defects have not been substantial 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 born 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 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 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 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 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 more than six 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 have to effectively demonstrate to the court the following two items:
- The counter-claim, set-off or cross demand is equal to or more 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 probability 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 on. Failure to take advantage of the opportunity to counter-claim, including any damaging personal circumstances (including lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process ensues if you can validate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, as opposed to a genuine 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 be successful using these grounds, you will need to present evidence of collateral purpose or excessive pressure.
What If I find that I have grounds to act on one of these items above?
If you think 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 for you to apply for your bankruptcy notice to be set aside:.
- Application (Form B2); and.
You can find 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 specify the ideal outcome you aspire 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 present a copy of the bankruptcy notice with your application.
However, an interim order has to illustrate 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 could 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 wish to make an application, it must be accompanied by an affidavit which describes 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 crucial that your affidavit must abide by rule 3.02 of the Rules, or else your application may be declined and your request for an extension of time to comply with the bankruptcy notice may not be granted.
Filing your application.
As soon as 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 charge that will need to be paid, however in certain 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 submitted.
If you are an individual, you must personally take the documents to the individual identified on the document and give it to them. If they choose not to take the documents, the individual serving them may place the document in the presence of the individual to be served and verbally tell the individual what the documents consist of.
If you are a company, you must personally go to a registered office of the business and give the documents to an individual servicing that company. You don’t have to present the documents to the businesses principal business, the Australian Securities and Investment Commission (ASIC) will supply you with a list of that organisations registered addresses.
If you would prefer 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 clear whether you have grounds to set aside the bankruptcy notice, or you’re doubtful whether you should invest the time and money to apply because of financial reasons, get in touch with Bankruptcy Experts Darwin on 1300 795 575 for free advice. Additionally, you can visit our website for additional information: www.bankruptcyexpertsdarwin.com.au