If you have acquired a bankruptcy notice or court order you must take action rather quickly to prevent future grief. Owing someone money referred to here as a creditor, may be any person or organisation to whom you owe money. If you’re not able to pay money to a creditor, the creditor will talk to the Australian Financial Security Authority (AFSA) who will in turn send a bankruptcy notice requesting payment of that money.
Typically, there is a limit to the quantity of money owing to creditors before they can consult the AFSA, and the minimum amount is $5,000. When the creditor has secured a final judgment, AFSA will issue you with a bankruptcy notice.
It’s very important that you take immediate 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:
- Satisfy the bankruptcy notice within the requested timeframe expressed on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside within the timeframe expressed on the notice (normally 21 days).
Committing an act of bankruptcy suggests that you give your creditor the authorisation 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 can 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 some circumstances, a bankruptcy notice could be served electronically, either through email or fax.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of these sources, a court order can be acquired which allows creditors to serve the bankruptcy notice in a different way.
I have a bankruptcy notice, now what?
To adhere to a bankruptcy notice, you must do one of three things:
- You must pay in full the amount listed in the bankruptcy notice; or
- Establish an agreement with the creditor, for example a payment plan over a defined timeframe. The creditor must agree to the payment arrangements terms and conditions. It’s always advised that the agreement is made in writing so you have confirmation 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, simply contact us here at Bankruptcy Experts Mildura on 1300 795 575 for a Free Consultation.
It is vital to note that all of these actions must be taken within the timeframe mentioned 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 set aside or cancelled. This should never be taken lightly however, given that if there are insufficient grounds to make an application then you will be accountable to pay all the creditors legal expenses 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 smart idea to request that the court lengthens the timeframe for compliance with the bankruptcy notice, so you avert 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 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 prove that the debt claimed on your bankruptcy notice does not exist, you need to provide 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 filed the appropriate documents with the court that handed down the order. Further, you must be able to supply evidence to the Federal Circuit Court that reveals that you have an authentic case for grounds of appeal.
Moreover, 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 increase 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 appears when the creditor has failed to obey the requirements of the Act, in which case you might have grounds to make an application for the bankruptcy notice to be set aside. Some defects are more weighty than others, and not all defects will make a bankruptcy notice invalid as these defects can be remedied at the discretion of the court under s 306( 1) of the Act.
Typically, 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 fundamental requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will ultimately be void. The following lists some examples where these necessary 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 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 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 stated in an independent document attached to the notice.
The following details some cases where bankruptcy notice defects have not been serious 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 considered. 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 in excess of $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 exception 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 invalidate a bankruptcy notice, unless the debtor disputes the validity 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 need to properly 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 legit 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 acquired the judgement on which the bankruptcy notice is based on. Failure to take advantage of the opportunity to counter-claim, including any detrimental personal circumstances (for example lack of evidence or legal advice), will not be sufficient.
What is an Abuse of process?
An abuse of process materialises if you can show that the reasons behind the bankruptcy notice is to pressure you to pay a debt, as opposed to a legitimate effort by the creditor to invoke the court’s jurisdiction in relation to bankruptcy. If the former holds true, then you will have the potential to set aside the bankruptcy notice due to an abuse of process. To be successful using these grounds, you will need to provide evidence of collateral purpose or unnecessary pressure.
What If I feel that I have grounds to act on one of these items above?
If you believe 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 so as 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 obtain a final order or an interim order.
Final orders need to outline the ideal outcome you wish 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 produce a copy of the bankruptcy notice with your application.
Moreover, an interim order must 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 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 elect to make an application, it must be accompanied by an affidavit which describes 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 essential that your affidavit must fulfill rule 3.02 of the Rules, or else your application may be declined and your request for an extension of time to follow the bankruptcy notice may not be approved.
Filing your application.
As soon as 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 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 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 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 refuse to receive the documents, the person serving them may place the document in the presence of the individual to be served and verbally inform the individual what the documents are.
If you are an organisation, you must personally go to a registered office of the business and present the documents to an individual servicing that company. You don’t have to hand over the documents to the organisations principal place of business, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that company’s 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 fee.
If you’re not sure whether you have grounds to set aside the bankruptcy notice, or you’re skeptical whether you should spend the time and money to apply because of financial reasons, get in contact with Bankruptcy Experts Mildura on 1300 795 575 for free advice. Additionally, you can visit our website for more information: www.bankruptcyexpertsmildura.com.au