Everything you must know about Bankruptcy Notices

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If you have obtained a bankruptcy notice or court order you must respond promptly to prevent future grief. Owing somebody money known here as a creditor, may be any person or company to whom you owe money. If you’re not able to pay money to a creditor, the creditor will talk to the Australian Financial Security Authority (AFSA) who will consequently issue a bankruptcy notice requesting payment of that money.

Historically, there is a threshold to the quantity of money owing to creditors before they can call the AFSA, and the minimum amount is $5,000. When the creditor has received a final judgment, AFSA will issue you with a bankruptcy notice.

It’s paramount that you take prompt 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 stated 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 presented on the notice (normally 21 days).

Committing an act of bankruptcy implies that you give your creditor authority to apply to the Federal Circuit Court for a sequestration order, or simply put, 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 may be validly served to you directly, by regular post, or hand delivered to your registered address. In special scenarios, a bankruptcy notice can be served in electronic format, either through email or fax.

If it’s not attainable for a creditor to serve a bankruptcy notice using any of the above means, a court order may be secured which permits creditors to serve the bankruptcy notice in a separate way.

I have a bankruptcy notice, now what?

To adhere to a bankruptcy notice, you must do one of three things:

  1. You must pay in full the amount listed in the bankruptcy notice; or
  2. Establish an agreement with the creditor, for example a payment plan over a defined timeframe. The creditor must agree to the payment arrangements terms. It’s always advised that the agreement is made in writing so you have documentation of the agreement.
  3. Get some bankruptcy advice. At this point, you must not delay and get some assistance. If you have a notice of bankruptcy, simply give us a call here at Bankruptcy Experts Sydney on 1300 795 575 for a Free Consultation.

It is essential to note that all of these actions must be taken within 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 cancelled or set aside. This mustn’t be taken lightly however, considering that if there are inadequate grounds to make an application then you will be subject to pay all the creditors legal fees 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 smart idea to request that the court lengthens the timeframe for compliance with the bankruptcy notice, so you steer clear of committing an act of bankruptcy while the court processes your application. Essentially, 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 level 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 demonstrate that the debt claimed on your bankruptcy notice does not exist, you must 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 initiating 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 applicable documents with the court that handed down the order. In addition to this, you must have the capacity to provide evidence to the Federal Circuit Court that illustrates that you have a legitimate case for grounds of appeal.

On top of that, 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 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 occurs when the creditor has failed to satisfy the requirements of the Act, in which case you might have grounds to make an application for the bankruptcy notice to be set aside. Some defects are more arduous than others, and not all defects will make a bankruptcy notice void as these defects can be mended at the discretion of the court under s 306( 1) of the Act.

In general, the defect must be considerable or inflict confusion over the actions you must take to follow the bankruptcy notice for you to have the capacity to set aside the bankruptcy notice.

There are some necessary 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 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 outlined 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 circumstances 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 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 in excess of $5,000 when the order or judgements were pronounced;
  • A bankruptcy notice must be based upon 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 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 invalidate a bankruptcy notice, except if the debtor challenges the credibility 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 need to properly demonstrate to the court the following two items:

  1. 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 certified and have a realistic probability of succeeding; and.
  2. 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 capitalise on the opportunity to counter-claim, including any damaging personal circumstances (including lack of evidence or legal counsel), will not be sufficient.

What is an Abuse of process?

An abuse of process results if you can demonstrate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, rather than a genuine 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 due to an abuse of process. To be successful using these grounds, you will need to provide evidence of collateral purpose or unwarranted pressure.

What If I find that I have grounds to act on one of these items above?

If you find that 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:

  1. Application (Form B2); and.
  2. Affidavit.

Application.

You can get the requirements for an application to set aside a bankruptcy notice in rule 3.02 of the Rules. You can either request a final order or an interim order.

Final orders have to specify the ideal result you wish to receive and the legislative basis which the court can approve this decision. An example of a final order may 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 present a copy of the bankruptcy notice with your application.

However, an interim order must 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 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.”.

Affidavit.

If you want to make an application, it must be accompanied by an affidavit which illustrates 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 vital that your affidavit must satisfy rule 3.02 of the Rules, or else your application may be denied and your request for an extension of time to satisfy the bankruptcy notice may not be approved.

Filing your application.

Once 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 certain 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 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 refuse to receive 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 are.

If you are a business, you must personally go to a registered office of the organisation and hand the documents to an individual servicing that organisation. You don’t have to present the documents to the organisations principal place of business, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that businesses registered addresses.

If you would prefer another person to serve the documents, you can get a bailiff of the court or a process server to serve the documents for a fee.

Financial Advice.

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, speak to Bankruptcy Experts Sydney on 1300 795 575 for free advice. Additionally, you can visit our website for more information: www.bankruptcyexpertssydney.com.au