If you have received a bankruptcy notice or court order you must act quickly to avoid future pain. Owing someone money referred to 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 contact the Australian Financial Security Authority (AFSA) who will in turn issue a bankruptcy notice demanding payment of that money.
Naturally, there is a threshold to the amount of money owing to creditors before they can contact the AFSA, and the minimum amount is $5,000. Once the creditor has acquired 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:
• Comply with the bankruptcy notice within the requested time-frame stated on the notice (normally 21 days); or
• Apply to the courts to request the bankruptcy notice be cancelled or set aside within the timeframe stated on the notice (normally 21 days).
Committing an act of bankruptcy means that you give your creditor authority 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 can be served to you in a variety of ways; it can be validly served to you personally, by ordinary post, or hand delivered to your registered address. In certain circumstances, a bankruptcy notice can be served electronically, either via email or fax.
If it’s not possible for a creditor to serve a bankruptcy notice using any of the above means, a court order can be obtained which allows 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:
1. You must pay in full the amount specified in the bankruptcy notice; or
2. Arrange an agreement with the creditor, such as a payment plan over a certain period. 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 evidence of the agreement.
3. Get some insolvency advice. At this point you must not delay and get some advice. If you have a notice of bankruptcy simply give us a call here at Bankruptcy Experts TOWN on 1300 795 575 for a Free Consultation.
It’s important to note that either of these actions must be taken within the timeframe set out 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 cancelled or set aside. This mustn’t be taken lightly though, because if there are insufficient grounds to make an application then you will be responsible to pay all the creditors legal costs 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 wise 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 get onto this action don’t leave it to the last minute.
To have your bankruptcy notice set aside, one of the following conditions must apply:
1. The debt claimed on the bankruptcy notice does not exist;
2. There is a defect in the bankruptcy notice;
3. 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
4. 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 initiating proceedings to set aside the order or judgement.
In your application to set aside the bankruptcy notice, you cannot simply say that you intend to begin proceedings to set aside the judgement or order, or that you have a convincing argument to do so. You must have already filed the appropriate documents with the court that handed down the order. In addition to this, you must be able to supply evidence to the Federal Circuit Court that shows that you have a genuine case for grounds of appeal.
Furthermore, if you do not begin 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 be able to extend 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 arises when the creditor has failed to comply with the requirements of the Act, in which case you may have grounds to apply for 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 fixed at the discretion of the court under s 306(1) of the Act.
Typically, the defect must be substantial or cause 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 essential requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will subsequently be invalid. The following lists 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 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 detailed in a separate document attached to the notice.
The following details some cases where bankruptcy notice defects have not been substantial enough to make them invalid:
• Failing 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 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 less than $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 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 6 months of its issue. The only exception is if the Official Receiver (reg 4.02A) 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 within the timeframe for compliance (s 41(5)); and
• The order or judgment on which the bankruptcy notice is based cannot 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 these the grounds of counter-claim, set-off or cross demand, you will need to successfully demonstrate to the court the following two items:
1. 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 genuine and have a reasonable chance of succeeding; and
2. 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 upon. Failure to take advantage of the opportunity to counter-claim, including any adverse personal circumstances (such as lack of evidence or legal advice), will not suffice.
What is an Abuse of process?
An abuse of process occurs if you can prove 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 relation to insolvency. If the former is true, then you will have the opportunity to set aside the bankruptcy notice due to an abuse of process. To succeed using these grounds, you will need to provide evidence of collateral purpose or undue 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 dispute your bankruptcy you will need to do the following; Your documents will need to be prepared, filed, and served in order to apply for your bankruptcy notice to be set aside:
1. 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 apply for 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 grant this decision. An example of a final order could be: “The 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 needs to outline 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 could 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 outlines 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 very important that your affidavit must comply with rule 3.02 of the Rules, otherwise your application may be rejected and your request for an extension of time to comply with the bankruptcy notice may not be granted.
Filing your application
Once your documents are completed, they will need to be filed with the courts either online or in person at the Federal Circuit Court Registry.
There is a lodging fee 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 it has 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 hand it to them. If they refuse to take the documents, the person serving them may place the document in the presence of the person to be served and verbally tell the person what the document are.
If you are a company, you must personally visit a registered office of the company and give the documents to a person servicing that company. You don’t need to give the documents to the company’s principal place of business, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that company’s registered addresses.