Everything you will want to know about Bankruptcy Notices
If you have acquired a bankruptcy notice or court order you must act rather quickly to reduce future grief. Owing somebody money regarded here as a creditor, can be any individual or company to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will connect with the Australian Financial Security Authority (AFSA) who will in turn dispense a bankruptcy notice requesting payment of that money.
As you would expect, there is a threshold to the level of money owing to creditors before they can phone the AFSA, and the minimum amount is $5,000. As soon as the creditor has obtained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s essential that you take timely 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:
- Adhere to the bankruptcy notice in less than 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 within the timeframe described 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 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 number of ways; it may be validly served to you individually, by normal post, or hand delivered to your registered address. In several scenarios, a bankruptcy notice could be served in an electronic form, 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 acquired which enables creditors to serve the bankruptcy notice in a separate 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 stated in the bankruptcy notice; or
- Set up an agreement with the creditor, for example a payment plan over a specified time period. The creditor must accept the payment arrangements conditions. It’s always advised 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 help. If you have a notice of bankruptcy, just call us here at Bankruptcy Experts Bunbury on 1300 795 575 for a Free Consultation.
It is very important 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 should never 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 expenses which only inflates 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. To put it simply, 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 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 present 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 an authentic argument to do so. You must have already filed the proper documents with the court that handed down the order. Further, you must have the ability to produce evidence to the Federal Circuit Court that displays that you have an authentic case for grounds of appeal.
Secondly, if you do not initiate 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 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 satisfy 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 arduous than others, and not all defects will make a bankruptcy notice invalid as these defects can be mended at the discretion of the court under s 306( 1) of the Act.
Often, the defect must be serious or inflict 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 critical requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will consequently be void. The following provides some examples where these essential 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 itemised 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 outlines some situations 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 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 below $5,000, provided that the total amount was greater than $5,000 when the order or judgements were pronounced;
- A bankruptcy notice must be founded on 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 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 revoke a bankruptcy notice, except if the debtor contests the validity 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 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 effectively 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 certified and have a reasonable possibility of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor obtained the judgement on which the bankruptcy notice is based upon. Failure to benefit from the opportunity to counter-claim, including any negative personal circumstances (for instance lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process materialises if you can demonstrate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, instead of a real effort by the creditor to invoke the court’s jurisdiction in connection with insolvency. If the former holds true, then you will have the option to set aside the bankruptcy notice because of an abuse of process. To be successful using these grounds, you will need to produce evidence of collateral purpose or inappropriate pressure.
What If I think I have grounds to act on one of these items above?
If you feel 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 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 request a final order or an interim order.
Final orders must specify the ideal outcome you wish to receive and the legislative basis which the court can grant 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 supply a copy of the bankruptcy notice with your application.
On the contrary, an interim order needs to describe 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 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 summarises 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 essential that your affidavit must adhere to rule 3.02 of the Rules, or else your application may be turned down and your request for an extension of time to satisfy the bankruptcy notice may not be granted.
Filing your application.
When your documents are finalised, 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 certain 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 three 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 decide not to receive the documents, the individual serving them may place the document in the presence of the person to be served and verbally instruct the individual what the documents consist of.
If you are a business, you must personally go to a registered office of the company and hand the documents to a person servicing that company. You don’t need to present the documents to the organisations principal business, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that businesses 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 cost.
If you’re not clear whether you have grounds to set aside the bankruptcy notice, or you’re unclear whether you should devote the time and money to apply because of financial reasons, get in touch with Bankruptcy Experts Bunbury on 1300 795 575 for free advice. Additionally, you can visit our website for additional details: www.bankruptcyexpertsbunbury.com.au