If you have obtained a bankruptcy notice or court order you must act quickly to avoid future grief. Owing anybody money known here as a creditor, can be any person or organisation 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 deliver a bankruptcy notice demanding payment of that money.
As you would expect, there is a limit to the level of money owing to creditors before they can call the AFSA, and the minimum amount is $5,000. Immediately after the creditor has secured a final judgment, AFSA will issue you with a bankruptcy notice.
It’s critical 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 in less than the requested timeframe pronounced on the notice (normally 21 days); or
- Apply to the courts to request the bankruptcy notice be cancelled or set aside within the timeframe presented on the notice (normally 21 days).
Committing an act of bankruptcy means that you give your creditor permission to apply to the Federal Circuit Court for a sequestration order, or in other words, 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 several ways; it can be validly served to you directly, by ordinary post, or hand delivered to your registered address. In a number of circumstances, a bankruptcy notice can be served in an electronic form, either through fax or email.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of the above methods, a court order may be acquired which enables 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 indicated in the bankruptcy notice; or
- Establish an agreement with the creditor, such as a payment plan over a certain 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 documentation of the agreement.
- Get some insolvency advice. At this point, you must not delay and get some help. If you have a notice of bankruptcy, just phone us here at Bankruptcy Experts Hobart on 1300 795 575 for a Free Consultation.
It is vital to note that all of these actions must be taken inside 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 warranted, you can apply to the court to have the bankruptcy notice cancelled or set aside. This should not be taken lightly however, given that if there are unsatisfactory grounds to make an application then you will be obligated 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 clever 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. Simply put, don’t leave it to the last minute.
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 validate that the debt claimed on your bankruptcy notice does not exist, you must 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 genuine 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 establishes that you have a legitimate case for grounds of appeal.
Moreover, if you do not commence 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 increase the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. Subsequently, 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 follow 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 weighty than others, and not all defects will make a bankruptcy notice void as these defects can be fixed at the discretion of the court under s 306( 1) of the Act.
Generally speaking, the defect must be serious or cause 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 fundamental requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will therefore be void. The following lists some examples where these crucial 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 itemised 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 cited in an independent document attached to the notice.
The following outlines some situations where bankruptcy notice defects have not been substantial 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 born 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 more than $5,000 when the order or judgements were pronounced;
- A bankruptcy notice must be based 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 undermine a bankruptcy notice, unless the debtor challenges the validity of the notice inside 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 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 more than the total amount claimed by the creditor in the bankruptcy notice. You must also satisfy the court that these claims are legitimate and have a reasonable possibility 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 adversarial personal circumstances (like lack of evidence or legal counsel), will not suffice.
What is an Abuse of process?
An abuse of process arises if you can demonstrate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, rather than an honest 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 supply evidence of collateral purpose or excessive pressure.
What If I find that I have grounds to act on one of these items above?
If you feel you have a case for one of the previously mentioned reasons to contend 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 secure a final order or an interim order.
Final orders must 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 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 need to supply a copy of the bankruptcy notice with your application.
However, an interim order has to summarise 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 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 wish to make an application, it must be accompanied by an affidavit which cites 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 paramount that your affidavit must follow rule 3.02 of the Rules, otherwise your application may be refused and your request for an extension of time to follow the bankruptcy notice may not be granted.
Filing your application.
When 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 scenarios 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 hand it to them. If they decide not to take the documents, the person serving them may put the document in the presence of the individual to be served and verbally explain to the person what the documents consist of.
If you are a company, you must personally visit a registered office of the organisation and present the documents to an individual servicing that company. You don’t need to deliver the documents to the company’s principal address, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that organisations registered addresses.
If you would prefer someone else 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 confident whether you have grounds to set aside the bankruptcy notice, or you’re not sure whether you should spend the time and money to apply because of financial reasons, call Bankruptcy Experts Hobart on 1300 795 575 for free advice. Alternatively, you can visit our website for additional information: www.bankruptcyexpertshobart.com.au