Everything you should know about Bankruptcy Notices
If you have acquired a bankruptcy notice or court order you must act immediately to prevent future distress. Owing someone money referred to here as a creditor, could be any person or business to whom you owe money. If you’re not able to pay money to a creditor, the creditor will get in touch with the Australian Financial Security Authority (AFSA) who will subsequently send a bankruptcy notice demanding payment of that money.
As expected, there is a threshold to the quantity of money owing to creditors before they can connect with the AFSA, and the minimum amount is $5,000. As soon as the creditor has secured a final judgment, AFSA will issue you with a bankruptcy notice.
It’s very important that you take swift 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:
- Adhere to the bankruptcy notice inside the requested timeframe stated on the notice (normally 21 days); or
- Apply to the courts to ask for the bankruptcy notice be cancelled or set aside within the timeframe stated on the notice (normally 21 days).
Committing an act of bankruptcy signifies 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 number of ways; it could be validly served to you directly, by ordinary post, or hand delivered to your registered address. In some scenarios, a bankruptcy notice could be served in digital format, either by means of email or fax.
If it’s not plausible for a creditor to serve a bankruptcy notice using any of these methods, a court order can be acquired which allows creditors to serve the bankruptcy notice in a different way.
I have a bankruptcy notice, now what?
To adhere to a bankruptcy notice, you must do one of three things:
- You must pay in full the amount cited in the bankruptcy notice; or
- Negotiate an agreement with the creditor, for example a payment plan over a specific period of time. The creditor must agree to the payment arrangements conditions. It’s always advocated 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 advice. If you have a notice of bankruptcy, simply give us a call here at Bankruptcy Experts Melbourne on 1300 795 575 for a Free Consultation.
It is vital to note that all of these actions must be taken inside the timeframe detailed 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 set aside or cancelled. This should not be taken lightly though, since if there are insufficient grounds to make an application then you will be subject to pay all the creditors legal costs which only raises 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 avert 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 volume 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 demonstrate that the debt claimed on your bankruptcy notice does not exist, you need to produce 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 filed the necessary documents with the court that handed down the order. Moreover, you must be able to supply evidence to the Federal Circuit Court that shows that you have a legitimate case for grounds of appeal.
Additionally, if you do not initiate 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 arises when the creditor has failed to adhere to 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 void as these defects can be remedied at the discretion of the court under s 306( 1) of the Act.
Commonly, the defect must be serious or lead to confusion over the actions you must take to comply with the bankruptcy notice for you to have the capability 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 consequently be invalid. The following lists some examples where these vital requirements have not been met:
- The creditor’s address on the bankruptcy notice has 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 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 itemised in a separate document attached to the notice.
The following describes some cases 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 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 in excess of $5,000 when the order or judgements were pronounced;
- A bankruptcy notice must be formed 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 4.02 A) 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 disqualify a bankruptcy notice, except if the debtor challenges the legitimacy 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 more 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 need to properly 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 legit and have a realistic chance 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 damaging personal circumstances (for instance lack of evidence or legal counsel), will not be sufficient.
What is an Abuse of process?
An abuse of process ensues if you can demonstrate 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 connection with insolvency. If the former is true, then you will have the potential to set aside the bankruptcy notice caused by an abuse of process. To succeed using these grounds, you will need to produce evidence of collateral purpose or unwarranted pressure.
What If I feel that I have grounds to act on one of these items above?
If you find that 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 acquire a final order or an interim order.
Final orders have to summarise the ideal outcome 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 have to supply a copy of the bankruptcy notice with your application.
On the other hand, an interim order has to 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 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 wish to make an application, it must be accompanied by an affidavit which describes 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 important 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 abide by the bankruptcy notice may not be approved.
Filing your application.
After your documents are finished, 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 some situations you can apply for a waiver of this fee.
Serving your documents.
Once you’ve filed 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 hand it to them. If they choose not to take the documents, the person serving them may place the document in the presence of the person to be served and verbally inform the individual what the documents consist of.
If you are an organisation, you must personally go to a registered office of the company and hand the documents to an individual servicing that company. You don’t have to give the documents to the company’s principal business, the Australian Securities and Investment Commission (ASIC) will supply you with a list of that organisations 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 fee.
If you’re not confident whether you have grounds to set aside the bankruptcy notice, or you’re unsure whether you should spend the time and money to apply as a result of financial reasons, reach out to Bankruptcy Experts Melbourne on 1300 795 575 for free advice. Additionally, you can visit our website for additional details: www.bankruptcyexpertsmelbourne.com.au