BANKRUPTCY NOTICES
FREQUENTLY ASKED QUESTIONS

This is often misunderstood and the consequences are huge, and the timelines are tight (21 days) so if you receive one, or think you might, you need advice from an experienced insolvency lawyer ASAP, ideally from a lawyer who has completed the ARITA course (a specialist course which needs to be completed before you can become a liquidator or trustee-in-bankruptcy).

What is a Bankruptcy Notice?

A Bankruptcy Notice is a formal notice of demand requiring a debtor to pay a debt.
In this article, we will look at what “satisfied” means, how to get a bankruptcy notice set aside, and what to do if a bankruptcy notice has not been satisfied.
A Bankruptcy Notice must be based on an order for at least $5,000 which is no more than six years old.
A Bankruptcy Notice can be based on more than one judgment that involves the same creditor provided the total of all the judgments exceeds $5,000.
If the Bankruptcy Notice is not “satisfied” within 21 days, then the person subject to the Bankruptcy Notice can be placed into bankruptcy.
There are other ways to have it set aside, some of which are described below, however at the end of the day, you need an experienced insolvency lawyer to get the notice set aside within time, and that lawyer needs to act quickly (within 21 days of service).

How are Bankruptcy Notices dealt with?

This area is extremely specialised, and the time frames are short, so if you get a bankruptcy notice, then you need to see an experienced insolvency lawyer ASAP.
Within 21 days of service, you need to do one of three things, to “satisfy” the bankruptcy notice, or you are presumed to be insolvent, and a creditor can rely on that presumption to seek that you be made bankrupt.
The three options are:

  1. pay the entire debt; or
  2. come to an agreement on what is paid; or
  3. apply to the Court to have it set aside on the basis there is a genuine dispute.

There are other ways to tackle a bankruptcy notice – some of these are set out below.
This need to be discussed with an experienced insolvency lawyer, and there are many ways to tackle a Bankruptcy Notice, but you need legal advice ASAP as you only have 21 days, or the presumption of insolvency arises.
The clock cannot be turned back – once the 21 days pass, that is it.
An experienced insolvency lawyer can also help negotiate a result within the 21 days.
The earlier one is engaged, the more that can be done.
We strongly advise against self-representation because the way you communicate can inadvertently help a creditor to collect evidence of insolvency, or evidence that there is no genuine dispute.

What happens with non-compliance of Bankruptcy Notices?

Non-compliance with a Bankruptcy Notice gives a creditor grounds to file a creditor’s petition in the Federal Court.
Once a creditor’s petition has been accepted by the court, a hearing will be set, and if the court is satisfied the correct procedure has been followed, can be made bankrupt UNLESS you can prove you are solvent.
If you can prove you are solvent, and just do not want to pay the creditor, then you will defeat an attempt to make you bankrupt.
The reason for this is that a bankruptcy notice is not a debt enforcement tool (although it is often used as one) – rather it is a way to test the solvency of the person receiving it.
For example, if the person receiving it has a greater counterclaim, then the bankruptcy notice should be set aside, as the two claims rule each other out, and therefore it does not need to be paid by the person receiving it.
An experienced insolvency lawyer can also help negotiate a result within the 21 days.
The earlier one is engaged, the more that can be done.
We strongly advise against self-representation as the way you communicate can help a creditor to collect evidence of insolvency, or evidence that there is no genuine dispute.
If you do not resist, then a sequestration order will make the debtor bankrupt, so seek advise ASAP.

Are Bankruptcy Notices recorded on the National Personal insolvency Index (NPII)?

Notices do not get recorded on the NPII.
If there is a non-compliance with the notice, a creditor’s petition is filed with the Federal Court, the creditor’s petition details will be recorded on the NPII, and the Bankruptcy Notice is then open to public inspection.
At that time anyone owed money can join in the application to make you bankrupt, which makes it harder to settle so it is wise to settle ASAP.
This effects your credit rating, any contracts to which you are party, the ability to get a license in many industries (eg finance) and can make future business opportunities difficult.
This is why you should seek advice on the implications of bankruptcy so you understand all of your options, and so you can act before your NPII is effected, and before other creditors join in to seek your bankruptcy.

Can Bankruptcy Notice extensions be made?

An application to extend the time within which to serve the Bankruptcy Notice that is made more than 6 months after the Bankruptcy Notice was originally issued would only be granted in exceptional circumstances.
The Official Receiver is able to extend the time for service of the Bankruptcy Notice for any period considered appropriate.
Periods of extension will usually be granted in blocks of up to 6 months from the original date of expiry.
If the service of the Bankruptcy Notice cannot be executed within the extensions period, the Bankruptcy Notice will become invalid unless a second extension is granted.

Can a debtor dispute a Bankruptcy Notice?

A debtor can make an application to either the Federal Court to have the Bankruptcy Notice set aside.
The debtor should request that the court extend the time for compliance with the Bankruptcy Notice so that the debtor does not commit an act of bankruptcy while waiting for the court hearing.
An experienced insolvency lawyer will know to do this.

What grounds can a debtor dispute a Bankruptcy Notice?

There are multiple grounds to dispute a Bankruptcy Notice, such as:

  1. Identifying technical defects in the Bankruptcy Notice (there are strict requirements that must be met or the Bankruptcy Notice is not valid).
  2. The debt on which the Bankruptcy Notice is based does not exist, or the debtor has a claim/counter claim against the creditor, equal to or greater than the amount claimed in the Bankruptcy Notice.
  3. The Bankruptcy Notice is an abuse of process.
  4. Attacking the method of service.
  5. Attacking whether the notice is drafted correctly.
  6. Applying to the Court to pay by way of instalment, and getting the Order from the Court before the 21 days has expired.
  7. Applying to Court to have the judgment set aside.
  8. Paying enough of the notice to get the amount below $5000.

This need to be discussed with an experienced insolvency lawyer, and there are many ways to tackle a Bankruptcy Notice, but you need legal advice ASAP as you only have 21 days, or the presumption of insolvency arises.

What are the time limitations of Bankruptcy Notices?

The Bankruptcy Notice must be served within 6 months after it is issued unless an extension of time has been granted.
The creditors petition lapses at the expiration of the period of 12 months commencing the date of presentation of the petition.

What are the filing requirements for creditors?

Throughout the bankruptcy process creditors must comply with time requirements to ensure that the NPII is up to date.
Creditors that do not comply with the time requirements for filing documents risk having strict liability notices imposed on them.
Upon making the Sequestration Order the creditor must give a copy to the Official Receiver within 2 working days.
There are a range of offences for creditors who fail to meet the strict time requirements

What should you do if you feel you have to go bankrupt?

Arrange an appointment with an experienced insolvency lawyer so you know:

  1. What your options are.
  2. Whether you can use alternatives to bankruptcy to avoid same – eg a part IX or part X arrangement.
  3. The consequences of declaring bankruptcy.
  4. Whether you should appoint your own trustee, or whether you should have one appointed by a creditor.
  5. How to set up an early discharge.
  6. How to asset protect.
  7. Whether your house or other assets are at risk – noting it is a common fallacy that putting the matrimonial house in the wife’s name protects the house – it does not protect it at all, and the trustee in bankruptcy can compel the sale of the house so that 50% can be clawed back to the trustee. That said, there are things that can be done if you have an experienced insolvency lawyer helping you.
  8. If you have been issued a Bankruptcy Notice, Irish Bentley Lawyers can assist in providing legal advice and support.

Our lawyers hold specialist qualifications in insolvency law through ARITA and our Principal Insolvency Lawyer, Zeke Bentley, has over two decades of experience in the area, has helped countless clients with insolvency matters and knows the majority of trustees should one be appointed.
The experienced team of solicitors at Irish Bentley Lawyers bring an extensive skill set to all bankruptcy and insolvency matters.
The team have previously acted for both creditors and debtors (as well as trustees in bankruptcy) in both small simple matters, and large complex matters.

At Irish Bentley Lawyers our team can provide legal knowledge, advice and protection during any stage of your matter.
We offer a $330 fixed consultation price where we can set out the main issues, and give you the options and the costs associated with each option.
It is a cost effective way to get clarity on a complex area of law, from experienced insolvency lawyers, and you should book an appointment if you suspect a bankruptcy notice will be served, or if you are in fact served.

Please call our office on (07) 3229 4060 for more information.

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