Everything you will need to know about Bankruptcy Notices
If you have been given a bankruptcy notice or court order you must take action rather quickly to reduce future distress. Owing somebody money known here as a creditor, can be any individual or business to whom you owe money. If you’re unfit to pay money to a creditor, the creditor will reach out to the Australian Financial Security Authority (AFSA) who will in turn deliver a bankruptcy notice demanding payment of that money.
Naturally, there is a limit to the quantity of money owing to creditors before they can contact the AFSA, and the minimum amount is $5,000. When the creditor has obtained 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:
- Abide by the bankruptcy notice within the requested timeframe declared on the notice (normally 21 days); or
- Apply to the courts to ask for the bankruptcy notice be cancelled or set aside inside the timeframe stated on the notice (normally 21 days).
Committing an act of bankruptcy implies that you give your creditor permission to apply to the Federal Circuit Court for a sequestration order, or to put it simply, an order that will make you legally bankrupt.
How does a Bankruptcy Notice get served to me?
A bankruptcy notice may be served to you in a couple of ways; it could be validly served to you in person, by ordinary post, or hand delivered to your registered address. In a number of circumstances, a bankruptcy notice can be served electronically, either through email or fax.
If it’s not achievable for a creditor to serve a bankruptcy notice using any of these means, a court order may be secured which enables creditors to serve the bankruptcy notice in a separate way.
I have a bankruptcy notice, now what?
To abide by a bankruptcy notice, you must do one of three things:
- You must pay in full the amount stated in the bankruptcy notice; or
- Arrange an agreement with the creditor, such as a payment plan over a defined timeframe. The creditor must accept the payment arrangements terms and conditions. It’s always encouraged that the agreement is made in writing so you have evidence 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, simply call us here at Bankruptcy Experts Wollongong on 1300 795 575 for a Free Consultation.
It is vital to note that all of these actions must be taken inside the timeframe specified 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 must not be taken lightly however, since if there are insufficient grounds to make an application then you will be liable to pay all the creditors legal fees which only amplifies 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 prolongs the timeframe for compliance with the bankruptcy notice, so you avoid committing an act of bankruptcy while the court processes your application. Essentially, 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 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 must present 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 relevant documents with the court that handed down the order. Additionally, 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.
At the same time, if you do not begin 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 emerges when the creditor has failed to fulfill 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 serious 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.
In most cases, the defect must be serious or cause confusion over the actions you must take to abide by the bankruptcy notice for you to have the capability to set aside the bankruptcy notice.
There are some critical requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will subsequently be void. The following provides some examples where these necessary requirements have not been met:
- The creditor’s address on the bankruptcy notice must 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 cited in a separate document attached to the notice.
The following specifies some scenarios where bankruptcy notice defects have not been serious enough to make them void:
- 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 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 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 exemption 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, except if the debtor contests 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 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 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 attained the judgement on which the bankruptcy notice is based on. Failure to take advantage of the opportunity to counter-claim, including any unfavourable personal circumstances (like lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process occurs 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 insolvency. If the former is true, then you will have the opportunity to set aside the bankruptcy notice resulting from an abuse of process. To be successful using these grounds, you will need to produce 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 that 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 to apply for your bankruptcy notice to be set aside:
- Application (Form B2); and.
You can get 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 want to receive and the legislative basis which the court can grant 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.
However, an interim order should outline 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 can 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 intend to make an application, it must be accompanied by an affidavit which details the grounds of your application coupled 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 essential that your affidavit must abide by rule 3.02 of the Rules, or else your application may be rejected and your request for an extension of time to adhere to the bankruptcy notice may not be granted.
Filing your application.
As soon as 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 some scenarios 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 lodged.
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 take the documents, the person serving them may put the document in the presence of the person to be served and verbally instruct the person what the documents consist of.
If you are a business, you must personally go to a registered office of the organisation and deliver the documents to a person servicing that business. You don’t have to hand over the documents to the company’s principal address, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that businesses registered addresses.
If you want 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 clear whether you have grounds to set aside the bankruptcy notice, or you’re unconvinced whether you should spend the time and money to apply resulting from financial reasons, speak to Bankruptcy Experts Wollongong on 1300 795 575 for free advice. Additionally, you can visit our website for more information: www.bankruptcyexpertswollongong.com.au