Everything you need to know about Bankruptcy Notices
If you have been given a bankruptcy notice or court order you must respond immediately to minimise future grief. Owing anyone money referred to here as a creditor, may be any person or company to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will approach the Australian Financial Security Authority (AFSA) who will consequently dispense a bankruptcy notice demanding payment of that money.
Clearly, there is a threshold to the total amount of money owing to creditors before they can get in touch with the AFSA, and the minimum amount is $5,000. As soon as the creditor has obtained a final judgment, AFSA will issue you with a bankruptcy notice.
It’s vital 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:
- Fulfill the bankruptcy notice within the requested timeframe reported on the notice (normally 21 days); or
- Apply to the courts to ask for the bankruptcy notice be cancelled or set aside in less than the timeframe described on the notice (normally 21 days).
Committing an act of bankruptcy signifies that you give your creditor the permission 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 range of ways; it can be validly served to you individually, by ordinary post, or hand delivered to your registered address. In a number of scenarios, a bankruptcy notice can be served in electronic format, either through 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 may be acquired which enables creditors to serve the bankruptcy notice in a different 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 cited in the bankruptcy notice; or
- Work out an agreement with the creditor, for example a payment plan over a certain period. The creditor must accept the payment arrangements T&C’s. It’s always suggested that the agreement is made in writing so you have proof of the agreement.
- Get some bankruptcy advice. At this point, you must not delay and get some help. If you have a notice of bankruptcy, just contact us here at Bankruptcy Experts Newcastle on 1300 795 575 for a Free Consultation.
It’s important to note that all of these actions must be taken inside 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 cancelled or set aside. This must never be taken lightly though, 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 escalates 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 extends the timeframe for compliance with the bankruptcy notice, so you evade committing an act of bankruptcy while the court processes your application. In short, 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 level 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 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 launching 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 filed the necessary documents with the court that handed down the order. Further, you must have the ability to supply evidence to the Federal Circuit Court that demonstrates that you have a genuine case for grounds of appeal.
On top of that, if you do not start 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 have the ability to lengthen the timeframe for compliance under sections 41( 6A) and 41( 6C) of the Act. As a result, 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 adhere to 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 critical than others, and not all defects will make a bankruptcy notice void as these defects can be remedied at the discretion of the court under s 306( 1) of the Act.
Often, the defect must be serious or result in confusion over the actions you must take to comply with the bankruptcy notice for you to have the opportunity to set aside the bankruptcy notice.
There are some important requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will ultimately be void. The following provides some examples where these vital 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 cited 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 outlined in a separate document attached to the notice.
The following describes some situations where bankruptcy notice defects have not been significant 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 lower than $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 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 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 revoke 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 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 genuine and have a reasonable chance of succeeding; and.
- The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor secured the judgement on which the bankruptcy notice is based upon. Failure to benefit from the opportunity to counter-claim, including any adverse personal circumstances (such as lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process occurs 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 because of an abuse of process. To succeed using these grounds, you will need to supply evidence of collateral purpose or excessive pressure.
What If I feel I have grounds to act on one of these items above?
If you feel 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 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 specify the ideal result you want 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 supply a copy of the bankruptcy notice with your application.
On the contrary, 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 could 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 outlines the grounds of your application in conjunction 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 crucial that your affidavit must comply with rule 3.02 of the Rules, or else your application may be turned down and your request for an extension of time to abide by the bankruptcy notice may not be granted.
Filing your application.
Once your documents are finalised, they will need to be filed with the courts either online or personally at the Federal Circuit Court Registry.
There is a lodging fee 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 submitted 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 decide not to take the documents, the person serving them may put the document in the presence of the person to be served and verbally explain to the person what the documents entail.
If you are an organisation, you must personally visit a registered office of the business and hand over the documents to a person servicing that company. You don’t need to present the documents to the company’s principal 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 cost.
If you’re not certain whether you have grounds to set aside the bankruptcy notice, or you’re not sure whether you should devote the time and money to apply because of financial reasons, call Bankruptcy Experts Newcastle on 1300 795 575 for free advice. Alternatively, you can visit our website for more information: www.bankruptcyexpertsnewcastle.com.au