If you have been given a bankruptcy notice or court order you must respond rather quickly to prevent future suffering. Owing somebody money regarded here as a creditor, can be any individual or business to whom you owe money. If you’re unable to pay money to a creditor, the creditor will speak to the Australian Financial Security Authority (AFSA) who will in turn send a bankruptcy notice requesting payment of that money.

Typically, there is a limit to the level of money owing to creditors before they can speak to the AFSA, and the minimum amount is $5,000. Immediately after the creditor has obtained 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 fail to 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 within the timeframe described 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 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 variety 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 situations, a bankruptcy notice can be served in a digital format, either through email or fax.

If it’s not achievable for a creditor to serve a bankruptcy notice using any of these sources, a court order can be provided which permits creditors to serve the bankruptcy notice in a separate way.

I have a bankruptcy notice, now what?

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

  1. You must pay in full the amount stated in the bankruptcy notice; or
  2. Negotiate an agreement with the creditor, for instance a payment plan over a specific timeframe. The creditor must agree to the payment arrangements conditions. It’s always advocated that the agreement is made in writing so you have proof of the agreement.
  3. Get some bankruptcy advice. At this point, you must not delay and get some recommendations. If you have a notice of bankruptcy, simply call us here at Bankruptcy Experts Rockingham 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 never be taken lightly though, because if there are insufficient grounds to make an application then you will be liable to pay all the creditors legal expenses 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 smart idea to request that the court prolongs the timeframe for compliance with the bankruptcy notice, so you refrain from committing an act of bankruptcy while the court processes your application. Basically, don’t leave it to the eleventh hour.

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 substantiate that the debt claimed on your bankruptcy notice does not exist, you have to provide 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 relevant documents with the court that handed down the order. Furthermore, you must have the ability to provide evidence to the Federal Circuit Court that demonstrates that you have a legitimate case for grounds of appeal.

Further, 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 be able to extend 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 appears when the creditor has failed to abide by the requirements of the Act, in which case you may 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 addressed at the discretion of the court under s 306( 1) of the Act.

Generally speaking, the defect must be substantial or create 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 fundamental requirements of a bankruptcy notice and if these requirements aren’t met, the bankruptcy notice will ultimately be invalid. The following lists 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 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 specified 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 scenarios 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 (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 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 founded 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 exemption is if the Official Receiver (reg 4.02 A) has increased 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 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 effectively 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 chance of succeeding; and.
  2. The counter-claim, set-off or cross demand was not set up in the proceeding where the creditor acquired the judgement on which the bankruptcy notice is based on. Failure to capitalise on the opportunity to counter-claim, including any adversarial personal circumstances (such as lack of evidence or legal advice), will not be sufficient.

What is an Abuse of process?

An abuse of process transpires if you can establish 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 regard to bankruptcy. If the former holds true, then you will have the potential to set aside the bankruptcy notice as a result of an abuse of process. To succeed using these grounds, you will need to produce evidence of collateral purpose or unjustifiable pressure.

What If I feel that 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 contest 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 illustrate 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 have to supply a copy of the bankruptcy notice with your application.

Conversely, an interim order should specify any outcomes you wish before the application is finally decided upon, and the legislative basis which the court can grant this decision. An example of an interim order could be: “The time for compliance with bankruptcy notice (BN00233) be lengthened 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 outlines 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 vital that your affidavit must fulfill rule 3.02 of the Rules, otherwise 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.

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 scenarios 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 individual identified on the document and hand it to them. If they refuse to take the documents, the person serving them may put the document in the presence of the individual to be served and verbally inform the individual what the documents consist of.

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

Financial Advice.

If you’re not convinced whether you have grounds to set aside the bankruptcy notice, or you’re not sure whether you should invest the time and money to apply resulting from financial reasons, speak to Bankruptcy Experts Rockingham on 1300 795 575 for free advice. Additionally, you can visit our website for more information: www.bankruptcyexpertsrockingham.com.au