If you have been given a bankruptcy notice or court order you must act immediately to prevent future distress. Owing someone money known here as a creditor, may be any person or business to whom you owe money. If you’re unable to pay money to a creditor, the creditor will approach the Australian Financial Security Authority (AFSA) who will subsequently issue a bankruptcy notice requesting payment of that money.
Naturally, 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. Once the creditor has obtained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s integral that you take prompt 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 stated on the notice (normally 21 days); or
- Apply to the courts to ask for the bankruptcy notice be cancelled or set aside in less than the timeframe reported on the notice (normally 21 days).
Committing an act of bankruptcy means that you give your creditor the permission 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 can be served to you in a variety of ways; it may be validly served to you in person, by normal post, or hand delivered to your registered address. In certain circumstances, a bankruptcy notice can be served in a digital form, either via email or fax.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of the above sources, a court order may be acquired 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 defined in the bankruptcy notice; or
- Negotiate an agreement with the creditor, for example a payment plan over a specified period of time. The creditor must accept the payment arrangements terms. It’s always recommended that the agreement is made in writing so you have confirmation 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 contact us here at Bankruptcy Experts Parramatta on 1300 795 575 for a Free Consultation.
It is crucial to note that all of these actions must be taken within the timeframe set out 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 cancelled or set aside. This should not be taken lightly though, since if there are inadequate grounds to make an application then you will be liable to pay all the creditors legal costs which only raises the debt you owe to them.
If you do apply for your bankruptcy notice to be set aside, it’s always a sensible 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. 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 verify that the debt claimed on your bankruptcy notice does not exist, you 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 genuine argument to do so. You must have already submitted the necessary documents with the court that handed down the order. Along with this, you must have the ability to produce evidence to the Federal Circuit Court that shows that you have a legitimate case for grounds of appeal.
Further, if you do not begin 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 lengthen the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. Subsequently, 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 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 critical than others, and not all defects will make a bankruptcy notice invalid as these defects can be corrected at the discretion of the court under s 306( 1) of the Act.
In most cases, the defect must be substantial or create confusion over the actions you must take to fulfill the bankruptcy notice for you to have the capacity 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 lists 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 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 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 outlined in a separate document attached to the notice.
The following lists some cases where bankruptcy notice defects have not been substantial 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 noted. 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 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 six months of its issue. The only exemption 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 annul a bankruptcy notice, unless the debtor challenges the legitimacy of the notice inside the timeframe for compliance (s 41( 5)); and.
- The order or judgment on which the bankruptcy notice is based can not be more than 6 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 need to successfully 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 authentic 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 secured the judgement on which the bankruptcy notice is based upon. Failure to make use of the opportunity to counter-claim, including any negative personal circumstances (like lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process happens if you can prove that the reasons behind the bankruptcy notice is to pressure you to pay a debt, instead of an honest effort by the creditor to invoke the court’s jurisdiction in regard to bankruptcy. If the former holds true, then you will have the option to set aside the bankruptcy notice because of an abuse of process. To succeed using these grounds, you will need to supply evidence of collateral purpose or excessive pressure.
What If I think I have grounds to act on one of these items above?
If you believe you have a case for one of the previously mentioned reasons to contend 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 find 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 outcome you want to receive and the legislative basis which the court can approve this decision. An example of a final order might 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.
Conversely, an interim order needs 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 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 elect to make an application, it must be accompanied by an affidavit which describes 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 comply with 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 approved.
Filing your application.
After your documents are completed, 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 lodged 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 lodged.
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 refuse to take the documents, the person serving them may place the document in the presence of the individual to be served and verbally explain to the person what the documents consist of.
If you are an organisation, you must personally visit a registered office of the organisation and deliver the documents to an individual servicing that organisation. You don’t need 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 would like somebody else 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 certain whether you have grounds to set aside the bankruptcy notice, or you’re unsure whether you should spend the time and money to apply resulting from financial reasons, talk to Bankruptcy Experts Parramatta on 1300 795 575 for free advice. Additionally, you can visit our website for additional details: www.bankruptcyexpertsparramatta.com.au