You may have come to the end of litigation or in some cases, been a party to litigation you never knew existed, and now find yourself being served with a bankruptcy notice.
The worst thing you can do is ignore a bankruptcy notice. Whether you like it or not, you need to deal with it to avoid a court ordering you into bankruptcy.
The good news is that even if you don’t have the money to pay the amount claimed in the notice, there are steps you may be able to take to have the notice set aside by the Federal Circuit Court or to negotiate a different outcome with your creditors.
Here’s a run-down of what you should do.
What’s a bankruptcy notice?
It’s a document issued by the Official Receiver (who sits in the Australian Financial Security Authority) at the request of a creditor who has obtained a final judgment or order from a court against you for payment of money. The notice requires you to pay or secure the payment of the amount claimed in the notice within 21 days of the notice being served on you.
Pay attention to the date of service and how it’s served
A bankruptcy notice can be served in person by the notice being handed directly to you. It can also be served on you by post or courier, left in an envelope at your document exchange address, left in an envelope at your house and sent to you by fax or email. It can’t be served on you by leaving it with your neighbour, your mum, your spouse or your employer unless the court has made a special order that says so.
The date you were served with the bankruptcy notice is critical because that starts the clock running on the time in which you must either pay or secure the payment of the amount claimed in the notice or apply to the court to set the notice aside.
If you don’t pay or secure the payment of the amount claimed in the notice or apply to the court to set it aside within 21 days then you’ll have committed an ‘act of bankruptcy’. Once you’ve committed an ‘act of bankruptcy’, the creditor who served the bankruptcy notice on you can commence court proceedings and ask the court to make an order bankrupting you.
How do you get a notice set aside?
You can ask the court to set aside a bankruptcy notice if:
- the final judgment or court order on which the bankruptcy notice relies is a default judgment and you successfully apply to the original court to have the default judgment set aside;
- you have a counter-claim, set-off or cross-demand equal to or exceeding the amount claimed in the notice; or
- you can successfully argue the bankruptcy notice is defective in a substantive way or it has a minor defect but that defect will cause you substantial injustice.
You can also ask the court to make a declaration that the bankruptcy notice is invalid if the judgment or order on which the notice relies is not a final order or the judgment or order has been stayed.
What if I can’t pay and I can’t get the notice set aside?
If you don’t have the money to pay or secure payment of the amount claimed in the notice, and you can’t have the notice set aside, there are other options available to you, including:
- negotiating payment of the debt by instalments with your creditor;
- presenting a debtor’s petition to the Official Receiver to enter into voluntary bankruptcy;
- submitting a debt agreement proposal to the Australian Financial Security Authority; or
- negotiating a personal insolvency agreement with your creditors.
Get legal advice as quick as you can
If you think you have grounds to set aside the bankruptcy notice, or you’d like to negotiate a different outcome with your creditors, you should get to a lawyer pronto for advice about the notice and so the relevant court application can be made within the 21 day period after you’ve been served with the notice.
You should take to your lawyer whatever records you have in your possession about the notice and the underlying final judgment or court order, and be ready to spend time properly instructing your lawyer about the underlying dispute, your evidence for and against your position, and what you want to achieve (for example, set aside the bankruptcy notice or negotiate a settlement with your creditors).
A lawyer can’t properly prepare an application, or generally advise you about how best to respond to the bankruptcy notice, without all the facts and an understanding of the evidence. For this reason we recommend you don’t scrimp on this step or outsource it to someone without knowledge of the facts or authority to make binding decisions (like a relative or your accountant).
The talented team at Meyer Vandenberg can assist you with any of the issues discussed above, just call…
For more information contact the Commercial Dispute Resolution Team: