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Everything you should know about Bankruptcy Notices

If you have obtained a bankruptcy notice or court order you must act right away to avoid future pain. Owing someone else money regarded here as a creditor, can be any individual 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 in turn send a bankruptcy notice demanding payment of that money.

As to be expected, there is a threshold to the amount of money owing to creditors before they can talk to the AFSA, and the minimum amount is $5,000. Immediately after the creditor has acquired a final judgment, AFSA will issue you with a bankruptcy notice.

It’s integral 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 presented 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 presented on the notice (normally 21 days).

Committing an act of bankruptcy means that you give your creditor authorisation to apply to the Federal Circuit Court for a sequestration order, or in other words, an order that will make you lawfully bankrupt.

How does a Bankruptcy Notice get served to me?

A bankruptcy notice could 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 certain situations, a bankruptcy notice could be served digitally, either using email or fax.

If it’s not conceivable for a creditor to serve a bankruptcy notice using any of the above sources, a court order may be provided which permits 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 detailed in the bankruptcy notice; or
  2. Negotiate an agreement with the creditor, for example a payment plan over a certain timeframe. The creditor must accept the payment arrangements terms and conditions. It’s always advised that the agreement is made in writing so you have documentation of the agreement.
  3. Get some insolvency advice. At this point, you must not delay and get some advice. If you have a notice of bankruptcy, simply reach out to us here at Bankruptcy Experts Cassowary Coast on 1300 795 575 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 justified, you can apply to the court to have the bankruptcy notice set aside or cancelled. This should not be taken lightly however, simply because if there are insufficient grounds to make an application then you will be accountable to pay all the creditors legal expenses 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 clever idea to request that the court prolongs the timeframe for compliance with the bankruptcy notice, so you keep away from 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:

  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 amount 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 prove that the debt claimed on your bankruptcy notice does not exist, you will need to supply 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 persuasive argument to do so. You must have already submitted the necessary documents with the court that handed down the order. Further, you must have the ability to present evidence to the Federal Circuit Court that indicates that you have a legitimate case for grounds of appeal.

Further, 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 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 follow 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 arduous than others, and not all defects will make a bankruptcy notice void as these defects can be amended at the discretion of the court under s 306( 1) of the Act.

Ordinarily, the defect must be substantial or induce 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 imperative requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will consequently be invalid. The following details some examples where these crucial 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 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 detailed 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 outlined in an independent document attached to the notice.

The following details some cases 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 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 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 disqualify a bankruptcy notice, unless the debtor contests the validity 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 have to successfully demonstrate to the court the following two items:

  1. 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 legit 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 attained the judgement on which the bankruptcy notice is based upon. Failure to take advantage of the opportunity to counter-claim, including any damaging personal circumstances (for instance lack of evidence or legal advice), will not suffice.

What is an Abuse of process?

An abuse of process arises if you can validate that the reasons behind the bankruptcy notice is to pressure you to pay a debt, in contrast to an honest effort by the creditor to invoke the court’s jurisdiction in connection with bankruptcy. If the former is true, then you will have the option to set aside the bankruptcy notice caused by an abuse of process. To be successful using these grounds, you will need to deliver evidence of collateral purpose or inappropriate pressure.

What If I believe 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 contend 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 locate 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 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 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 have to produce a copy of the bankruptcy notice with your application.

Alternatively, 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 may 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 elect to make an application, it must be accompanied by an affidavit which states 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 extremely important that your affidavit must fulfill rule 3.02 of the Rules, or else your application may be refused and your request for an extension of time to fulfill the bankruptcy notice may not be granted.

Filing your application.

After your documents are completed, 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 certain circumstances you can apply for a waiver of this fee.

Serving your documents.

Once you’ve lodged 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 submitted.

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 decide not to take the documents, the individual serving them may put the document in the presence of the person to be served and verbally tell the person what the documents entail.

If you are an organisation, you must personally visit a registered office of the business and present the documents to a person servicing that business. You don’t need to present the documents to the company’s principal workplace, the Australian Securities and Investment Commission (ASIC) will provide you with a list of that company’s registered addresses.

If you 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 cost.

Financial Advice.

If you’re not sure whether you have grounds to set aside the bankruptcy notice, or you’re skeptical whether you should devote the time and money to apply due to financial reasons, get in touch with Bankruptcy Experts Cassowary Coast on 1300 795 575 for free advice. Additionally, you can visit our website for additional details: www.bankruptcyexpertscassowarycoast.com.au