Everything you will need to know about Bankruptcy Notices

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Insolvency,Bankruptcy Australia,Bankruptcy Advice

If you have received a bankruptcy notice or court order you must respond right away to minimise future grief. Owing anyone money referred to here as a creditor, can be any person or business to whom you owe money. If you’re unable to pay money to a creditor, the creditor will speak with the Australian Financial Security Authority (AFSA) who will consequently deliver a bankruptcy notice demanding payment of that money.

As expected, there is a threshold to the total amount of money owing to creditors before they can approach the AFSA, and the minimum amount is $5,000. After the creditor has attained a final judgment, AFSA will issue you with a bankruptcy notice.

It’s essential 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 inside the requested timeframe reported on the notice (normally 21 days); or
  • Apply to the courts to request the bankruptcy notice be cancelled or set aside in less than the timeframe pronounced 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 other words, 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 several ways; it can be validly served to you individually, by normal post, or hand delivered to your registered address. In some circumstances, a bankruptcy notice may be served electronically, either by means of email or fax.

If it’s not attainable for a creditor to serve a bankruptcy notice using any of the above sources, a court order can be secured which enables creditors to serve the bankruptcy notice in a different way.

I have a bankruptcy notice, now what?

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

  1. You must pay in full the amount specificed in the bankruptcy notice; or
  2. Negotiate an agreement with the creditor, such as a payment plan over a certain timeframe. The creditor must agree to the payment arrangements T&C’s. It’s always recommended that the agreement is made in writing so you have evidence of the agreement.
  3. Get some bankruptcy advice. At this point, you must not delay and get some guidance. If you have a notice of bankruptcy, just contact us here at Bankruptcy Advice on 1300 879 867 for a Free Consultation.

It is crucial 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 warranted, you can apply to the court to have the bankruptcy notice cancelled or set aside. This should not be taken lightly however, considering that if there are unsatisfactory grounds to make an application then you will be accountable to pay all the creditors legal fees 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 wise idea to request that the court extends the timeframe for compliance with the bankruptcy notice, so you avert committing an act of bankruptcy while the court processes your application. To put it simply, 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 establish that the debt claimed on your bankruptcy notice does not exist, you will 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 persuasive argument to do so. You must have already filed the relevant documents with the court that handed down the order. Further, you must have the ability to provide evidence to the Federal Circuit Court that illustrates that you have a legitimate case for grounds of appeal.

Likewise, if you do not commence 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 increase 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 results when the creditor has failed to adhere to 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 critical than others, and not all defects will make a bankruptcy notice void as these defects can be repaired at the discretion of the court under s 306( 1) of the Act.

Commonly, the defect must be serious or cause confusion over the actions you must take to fulfill the bankruptcy notice for you to have the opportunity 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 ultimately be void. The following details some examples where these imperative requirements have not been met:

  • The creditor’s address on the bankruptcy notice needs to 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 specified in an independent 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 specified in an independent 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 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 higher 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 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 annul a bankruptcy notice, unless 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 more than six years old (s 41( 3)( c)).

Under what grounds could I counter-claim, set-off or cross demand?

To succeed 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 authenticated and have a realistic likelihood of succeeding; and.
  2. 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 take advantage of the opportunity to counter-claim, including any negative personal circumstances (for example lack of evidence or legal advice), will not be adequate.

What is an Abuse of process?

An abuse of process materialises if you can validate 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 regard to insolvency. If the former is true, then you will have the opportunity to set aside the bankruptcy notice due to an abuse of process. To be successful using these grounds, you will need to exhibit 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 previously mentioned reasons to dispute your bankruptcy, you will need to get the following documents prepared, filed, and served so as 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 make an application for a final order or an interim order.

Final orders must specify 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 present a copy of the bankruptcy notice with your application.

Moreover, an interim order should summarise 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.”.

Affidavit.

If you elect to make an application, it must be accompanied by an affidavit which describes 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 paramount that your affidavit must follow 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.

When your documents are finalised, they will need to be filed with the courts either online or face to face at the Federal Circuit Court Registry.

There is a lodging fee that will need to be paid, however in specific circumstances 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 3 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 receive the documents, the person serving them may place the document in the presence of the person to be served and verbally tell the individual what the documents are.

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

If you would like 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.

Financial Advice.

If you’re not satisfied whether you have grounds to set aside the bankruptcy notice, or you’re unsure whether you should devote the time and money to apply due to financial reasons, talk to Bankruptcy Advice on 1300 879 867 for free advice. As an alternative, you can visit our website for additional information: www.bankruptcy-advice.com.au/

 

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