Bankruptcy notices – the last resort of enforcement

Issuing a bankruptcy notice is often the last resort enforcement mechanism used by creditors to recover assets from a debtor. However, the knock-on effect can impact creditors and debtors alike.

The issuing of a bankruptcy notice should not be taken lightly. Streeterlaw shares some useful tips for creditors seeking recovery (and a warning regarding issuing bankruptcy notices for the purposes of retribution only).

Why issue a bankruptcy notice?

The decision to issue a bankruptcy notice is often made when a debtor fails to pay a judgment debt (issued by the Court after the creditor has lodged a Statement of Claim seeking the payment of the debt) and other attempts to enforce or recover the money have been unsuccessful. It is common for bankruptcy notices to be used as a method of enforcement by impatient creditors as it brings to a head the repayment of the money.

Conditions needed to issue a bankruptcy notice

1. Ensure you have a “final judgment or order” which is in money terms against the debtor. (The Judgement cannot be under appeal.)
2. The unpaid monetary claim must be at least $5000.
3. The notice must also be issued within six years of the date of the final judgment or order.

Notes for creditors

1. Creditors do not need to issue an additional Letter of Demand before issuing the notice. This is because the judgment obtained (which the bankruptcy notice relies upon) is sufficient to put the debtor on notice of the legal obligation to pay the debt claimed.
2. The basis of the Judgment Debt, which is the subject of the bankruptcy notice, can even be a Certificate of Costs Assessment – this is a final judgement.

How to issue a bankruptcy notice

The application for a bankruptcy notice is made through the Australian Financial Security Authority. The application includes the Sealed Judgment.

The bankruptcy notice is then served upon the debtor according to the legislation. The debtor has 21 days to comply with the bankruptcy notice.

Importantly, a failure to comply may result in the debtor committing an act of bankruptcy. In other words, the creditor will then have grounds to lodge a Creditor’s Petition, which is an order from the Court to make the debtor bankrupt and to appoint a trustee over their assets. The creditor, if unsecured, would then have to wait until there was a distribution by the trustee in relation to the bankrupt’s estate. There is an order of priority on how any payment from the estate of the bankrupt is made. This means creditors may not receive all of their money back.

Key lessons for creditors

• Obtain legal advice about the recovery options available to you (especially if you are an unsecured creditor) prior to pursuing a bankruptcy notice. Streeterlaw’s experienced Commercial Dispute Resolution team can assist you in issuing a bankruptcy notice and any other mechanisms that may assist you in determining the best form of recovery in the circumstances.
• A challenge to a bankruptcy notice made by a debtor can also incur additional costs as this results in the creditor becoming a respondent to an application to set aside the notice brought in the Federal Circuit Court (sometimes in the Federal Court).
• Obtain legal advice regarding any challenges that may be possible to the bankruptcy notice, the cost implications this may have if an application is brought and consider the risks of litigation.

Please contact our Accredited Specialist Commercial Litigation, on 8197 0105 to receive confidential advice on your debt recovery matter.  Alternatively, we can be contacted via email on advice@streeterlaw.com.au

This article should not be construed as advice, but each matter varies on a case by case basis.

Written by Mark Streeter

The Director of Streeterlaw, Mark has been practicing Law since 1994. He has attained his Masters of Law in 1999 and in 2006 was awarded his Specialist Accreditation in Commercial Litigation. Mark is a member of ARITA, a graduate of the AICD and a member of AICM. A member of STEP, Mark enjoys working in the area of Wills and Estates. In 2020 Mark is the Chair of STEP NSW.

Call us on 02 8197 0105 to book an appointment with Mark Streeter!