If you have been given a bankruptcy notice or court order you must act immediately to prevent future suffering. Owing anybody money referred to here as a creditor, may be any person or company to whom you owe money. If you’re not able to pay money to a creditor, the creditor will reach out to the Australian Financial Security Authority (AFSA) who will in turn dispense a bankruptcy notice demanding payment of that money.
Not surprisingly, there is a limit to the volume of money owing to creditors before they can speak with the AFSA, and the minimum amount is $5,000. When the creditor has attained 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 do not do any of the following:
- Comply with the bankruptcy notice in less than the requested timeframe declared on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside within the timeframe pronounced on the notice (normally 21 days).
Committing an act of bankruptcy indicates that you give your creditor the authorisation to apply to the Federal Circuit Court for a sequestration order, or in simple terms, 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 can be validly served to you directly, by regular post, or hand delivered to your registered address. In certain situations, a bankruptcy notice can be served in digital format, either using fax or email.
If it’s not practical for a creditor to serve a bankruptcy notice using any of the above sources, a court order can be provided which allows creditors to serve the bankruptcy notice in a different 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 specificed in the bankruptcy notice; or
- Work out an agreement with the creditor, such as a payment plan over a specific period of time. The creditor must agree to the payment arrangements terms. It’s always advocated that the agreement is made in writing so you have evidence of the agreement.
- Get some insolvency advice. At this point, you must not delay and get some advice. If you have a notice of bankruptcy, simply phone us here at Bankruptcy Experts Fremantle on 1300 795 575 for a Free Consultation.
It’s important to note that all of these actions must be taken within the timeframe stated 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 never be taken lightly however, because if there are unsatisfactory grounds to make an application then you will be obligated to pay all the creditors legal fees 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 practical 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. In short, 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 establish that the debt claimed on your bankruptcy notice does not exist, you have 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 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 relevant documents with the court that handed down the order. In addition to this, you must have the ability to supply evidence to the Federal Circuit Court that reveals that you have a legitimate case for grounds of appeal.
Likewise, if you do not start 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 lengthen 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 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 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 substantial or induce confusion over the actions you must take to comply with 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 subsequently be invalid. The following provides some examples where these necessary 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 outlined 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 itemised in a separate document attached to the notice.
The following lists 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 (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 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 formed 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 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 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 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 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 genuine and have a realistic 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 detrimental personal circumstances (including lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process results if you can validate 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 insolvency. If the former holds true, then you will have the chance to set aside the bankruptcy notice as a result of an abuse of process. To be successful using these grounds, you will need to supply evidence of collateral purpose or unnecessary pressure.
What If I think 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 rebut your bankruptcy, you will need to get the following documents prepared, filed, and served in order 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 need to summarise the ideal result you wish 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 have to provide a copy of the bankruptcy notice with your application.
Alternatively, an interim order needs to specify 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 may be: “The time for compliance with bankruptcy notice (BN00233) be prolonged 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 illustrates the grounds of your application together 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 adhere to rule 3.02 of the Rules, or else your application may be rejected and your request for an extension of time to satisfy the bankruptcy notice may not be approved.
Filing your application.
When your documents are finalised, 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 various 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 3 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 choose not to receive the documents, the individual serving them may place the document in the presence of the individual to be served and verbally inform the person what the documents are.
If you are a company, you must personally go to a registered office of the business and deliver the documents to an individual servicing that organisation. You don’t have to hand over the documents to the businesses principal address, the Australian Securities and Investment Commission (ASIC) will supply you with a list of that businesses registered addresses.
If you would prefer another person 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, contact Bankruptcy Experts Fremantle on 1300 795 575 for free advice. Alternatively, you can visit our website for more information: www.bankruptcyexpertsfremantle.com.au