If you have received a bankruptcy notice or court order you must respond rather quickly to minimise future distress. Owing someone money known here as a creditor, can be any person or company to whom you owe money. If you’re unable to pay money to a creditor, the creditor will get in touch with the Australian Financial Security Authority (AFSA) who will in turn dispense a bankruptcy notice requesting payment of that money.
Typically, there is a limit to the amount of money owing to creditors before they can speak with the AFSA, and the minimum amount is $5,000. Immediately after the creditor has obtained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s 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:
- Comply with the bankruptcy notice within the requested timeframe specified on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside inside the timeframe described on the notice (normally 21 days).
Committing an act of bankruptcy implies 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 a couple of ways; it could be validly served to you directly, by ordinary post, or hand delivered to your registered address. In several situations, a bankruptcy notice can be served in digital format, either by means of fax or email.
If it’s not practical for a creditor to serve a bankruptcy notice using any of these sources, a court order may be secured which permits creditors to serve the bankruptcy notice in a separate way.
I have a bankruptcy notice, now what?
To fulfill a bankruptcy notice, you must do one of three things:
- You must pay in full the amount specificed in the bankruptcy notice; or
- Arrange an agreement with the creditor, such as a payment plan over a specified timeframe. The creditor must agree to the payment arrangements terms. It’s always advocated that the agreement is made in writing so you have documentation of the agreement.
- Get some bankruptcy advice. At this point, you must not delay and get some recommendations. If you have a notice of bankruptcy, just give us a ring here at Bankruptcy Experts Northern Rivers on 1300 795 575 for a Free Consultation.
It is essential to note that all of these actions must be taken within 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 insufficient grounds to make an application then you will be liable 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 smart 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. Basically, 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 demonstrate that the debt claimed on your bankruptcy notice does not exist, you will 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. In addition to this, you must have the ability to provide evidence to the Federal Circuit Court that displays that you have an authentic case for grounds of appeal.
Further, 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 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 occurs when the creditor has failed to obey 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 severe than others, and not all defects will make a bankruptcy notice void as these defects can be mended at the discretion of the court under s 306( 1) of the Act.
Usually, the defect must be considerable or inflict confusion over the actions you must take to adhere to the bankruptcy notice for you to have the ability to set aside the bankruptcy notice.
There are some vital requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will ultimately be void. The following details some examples where these imperative 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 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 specified in a separate document attached to the notice.
The following specifies some circumstances where bankruptcy notice defects have not been considerable 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 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 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 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, unless the debtor challenges 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 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 have to proficiently 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 authentic 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 obtained the judgement on which the bankruptcy notice is based upon. Failure to benefit from the opportunity to counter-claim, including any unfavourable personal circumstances (for example lack of evidence or legal advice), will not suffice.
What is an Abuse of process?
An abuse of process transpires 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 regard to bankruptcy. If the former is true, then you will have the chance to set aside the bankruptcy notice because of an abuse of process. To be successful using these grounds, you will need to exhibit evidence of collateral purpose or unjustifiable pressure.
What If I feel I have grounds to act on one of these items above?
If you feel that 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 acquire 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 can 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.
Alternatively, 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 grant this decision. An example of an interim order can be: “The time for compliance with bankruptcy notice (BN00233) be lengthened 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 cites the grounds of your application as well as 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, otherwise your application may be turned down and your request for an extension of time to fulfill the bankruptcy notice may not be approved.
Filing your application.
Once your documents are finished, they will need to be filed with the courts either online or face to face at the Federal Circuit Court Registry.
There is a lodging fee that will need to be paid, however in specific situations 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 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 refuse to receive the documents, the individual serving them may place the document in the presence of the individual to be served and verbally announce to the individual what the documents entail.
If you are a business, you must personally visit a registered office of the organisation and hand the documents to an individual servicing that business. You don’t have to hand the documents to the businesses principal workplace, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that businesses registered addresses.
If you would like 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 satisfied whether you have grounds to set aside the bankruptcy notice, or you’re unsure whether you should devote the time and money to apply as a result of financial reasons, talk with Bankruptcy Experts Northern Rivers on 1300 795 575 for free advice. Additionally, you can visit our website for additional information: www.bankruptcyexpertsnorthernrivers.com.au