Everything you should know about Bankruptcy Notices
If you have obtained a bankruptcy notice or court order you must respond quickly to minimise future distress. Owing someone money known here as a creditor, can be any individual or company to whom you owe money. If you’re unable to pay money to a creditor, the creditor will speak with the Australian Financial Security Authority (AFSA) who will in turn deliver a bankruptcy notice demanding payment of that money.
Of course, there is a threshold to the level of money owing to creditors before they can call the AFSA, and the minimum amount is $5,000. After the creditor has secured a final judgment, AFSA will issue you with a bankruptcy notice.
It’s very 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:
– Adhere to the bankruptcy notice within 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 within the timeframe reported on the notice (normally 21 days).
Committing an act of bankruptcy means 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 legally bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice could be served to you in several ways; it can be validly served to you personally, by normal post, or hand delivered to your registered address. In certain circumstances, a bankruptcy notice can be served in a digital format, either through fax or email.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of these sources, a court order may be obtained which permits 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 stated in the bankruptcy notice; or
- Organise 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, just give us a call here at Bankruptcy Experts Australia on 1300 795 575 for a Free Consultation.
It is vital to note that all of these actions must be taken inside the timeframe specified 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 must never be taken lightly however, given that if there are insufficient grounds to make an application then you will be obligated to pay all the creditors legal expenses which only bloats 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 amount 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 establish that the debt claimed on your bankruptcy notice does not exist, you have 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 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 persuasive argument to do so. You must have already submitted the applicable documents with the court that handed down the order. Moreover, you must be able to provide evidence to the Federal Circuit Court that illustrates that you have a legitimate 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 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 happens when the creditor has failed to abide by 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 void as these defects can be addressed at the discretion of the court under s 306( 1) of the Act.
Normally, the defect must be substantial or lead to confusion over the actions you must take to abide by 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 invalid. The following provides some examples where these important 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 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 detailed 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 itemised in a separate document attached to the notice.
The following outlines some cases where bankruptcy notice defects have not been serious 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 (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 less than $5,000, provided that the total amount was higher 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 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, except if the debtor contests the legitimacy 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 have to properly 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 certified and have a reasonable 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 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 suffice.
What is an Abuse of process?
An abuse of process arises if you can show that the reasons behind the bankruptcy notice is to pressure you to pay a debt, in contrast to a legitimate effort by the creditor to invoke the court’s jurisdiction in regard to 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 succeed using these grounds, you will need to supply 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 think you have a case for one of the abovementioned reasons to contend 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 find 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 must summarise the ideal outcome you aspire to receive and the legislative basis which the court can approve 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 need to provide a copy of the bankruptcy notice with your application.
On the other hand, an interim order must 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 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 states the grounds of your application in conjunction 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 vital that your affidavit must fulfill rule 3.02 of the Rules, otherwise your application may be refused 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 completed, they will need to be filed with the courts either online or personally at the Federal Circuit Court Registry.
There is a lodging charge 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 filed 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 filed.
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 individual serving them may place the document in the presence of the person to be served and verbally instruct the person what the documents entail.
If you are an organisation, you must personally go to a registered office of the organisation and give the documents to an individual servicing that organisation. You don’t have to hand over the documents to the company’s principal business, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that organisations registered addresses.
If you would 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 spend the time and money to apply because of financial reasons, phone Bankruptcy Experts Australia on 1300 795 575 for free advice. Additionally, you can visit our website for additional details: www.bankruptcyexpertsaustralia.com.au