It is common for creditors to issue a bankruptcy notice prior to filing a creditors petition to make a person bankrupt. A bankruptcy notice is issued as a creditor must demonstrate to the court that an act of bankruptcy has occurred in the six months prior to a creditor’s petition being filed.
What should you do if you receive a bankruptcy notice? If the bankruptcy notice is valid and there are no grounds for dispute you should assess your ability to comply with the demand for payment or consider what personal insolvency options may be available to you. Alternatively there are many reasons a bankruptcy notice may be invalid and open to challenge.
If you are looking to challenge a bankruptcy notice it is critical that this is done within 21 days as this is the timeframe for expiry of the notice. If the bankruptcy notice is not challenged within this time a person can still be deemed to have committed an act of bankruptcy even if the bankruptcy notice is later set aside.
If you wish to set aside a bankruptcy notice you will be required to make an application to court and must be able to demonstrate that the bankruptcy notice is defective in a substantive way or that the defect is capable of causing substantial injustice and should be set aside.
Some of the more common reasons a bankruptcy notice may be challenged and set aside:
Incorrect Service
A bankruptcy notice may be challenged if it is not served in the following manner:
- Sent by post or courier service to the person’s last known address;
- Left in an envelope or similar package marked with the person’s name and relevant document exchange number, at a document exchange maintained by a person;
- Left in an envelope or similar package marked with the person’s name at their last known address;
- Personally delivered to the person; and
- Sent by facsimile transmission or other electronic transmission.
Generally, creditors will always attempt to serve bankruptcy notices on someone personally as the date of service cannot be disputed. If a creditor is unsuccessful in serving the notice in the prescribed manner they may apply to court for substituted service.
Incorrect Details
Bankruptcy notices can be successfully challenged where they have misstated any of the following:
- A person’s name or address;
- The terms of a judgement debt; and
- Miscalculated the amount of debt claimed.
Dispute of judgement debt upon which bankruptcy notice is based
A bankruptcy notice may be set aside if the person on which it is served disputes the validity of the debt which the bankruptcy notice is based upon. A person may have paid the amount owing under the judgement obtained by the creditor or proceedings may have been commenced to set aside the judgement due to a dispute.
Counter-claim, set-off or cross demand
A person may make an application to set aside a bankruptcy notice on the basis they hold a counter-claim, set-off or cross demand against the creditor who has issued the demand.
When making an application to set aside a bankruptcy notice it is prudent to also make an application to extend the time for compliance with the bankruptcy notice. This is done to ensure the bankruptcy notice does not expire while the court is considering the application to set aside the notice.
Unfortunately it isn’t all good news. If a bankruptcy notice is successfully set aside due to a defect a creditor may simply correct the defect and issue a second bankruptcy notice which will be effective.
Any person that is served with a bankruptcy notice should consider their financial position and options that may be available to them.
If any of your clients have received a bankruptcy notice and would like to discuss the options please contact one of SV Partners insolvency experts on 1800 246 801.
Article written by Michael Jeston – Supervisor, Terry Rose – Director, Queensland