Bankruptcy

Bankruptcy may be the best option to enforce a judgment in some circumstances.

If you are dealing with an experienced debtor (who is a person, not a company), then they may have taken steps to avoid having their assets seized and sold to satisfy a judgment or Court order.

It is quite common for a debtor to attempt to dispose of property or other assets during the debt recovery proceeding so they don’t have to fulfil their obligation to you – transfer to partner for example.

In instances of this nature, enforcement proceedings through the court may not yield and results you want, and might be expensive and frustrating.

We recommend serving your judgment debtor with a bankruptcy notice.

Then, if they do not do what they are obliged to do under the bankruptcy notice, making an application for a sequestration order forcing them into bankruptcy.

Bankruptcy may be the best way to enforce your judgment debt against your debtor

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Bankruptcy for Enforcing Judgment

So you have gone through the process of Court action or QCAT action and you have a judgment or money order.  Now what?  Well, if the debtor still refuses to pay, then you will need to commence enforcement proceedings against this judgment debtor.

There are a number of different enforcement proceedings that you are able to bring, but in some instances, making a debtor bankrupt may be your best option.

For example, if the debtor attends at the enforcement hearing and doesn’t provide any useful information or provide the documents requested.

What are the Steps for Bankruptcy

If you want to make a debtor bankrupt then there are some threshold steps that you must meet:

1. The debtor must be a natural person;
2. Have a judgment or order from the Court of $10,000.00 or more;
3. Apply for a notice at AFSA;
4. Serve the notice on the judgment debtor;
5. File a creditor’s petition with the Federal Court; and
6. Be given a sequestration order from the Court.

The Debtor must be a Natural Person

Bankruptcy attaches to a natural person.  For example “Debtor Business Pty Ltd” is the legal entity that you contracted with, but the director of the company has guaranteed the debt.

If the company does not repay the money it can be forced into liquidation and wound-up, then the director who signed personal guarantees can be made bankrupt.

Section 5 of the Bankruptcy Act 1966 (CTH) says:

“bankrupt ” means a person … against whose estate a sequestration order has been made…

Have a Judgment or Order from the Court of $10,000.00 or more

To be able to get a bankruptcy notice you must have a judgment or court order of $10,000.00 or more.  This can include more that one judgment or court order for the same creditor from that judgment debtor.

Section 41 of the Bankruptcy Act 1966 (CTH) says:

(1) An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:
(a) a final judgment or final order that:
(i) is of the kind described in paragraph 40(1)(g); and
(ii) is for an amount of at least $10,000; or
(b) 2 or more final judgments or final orders that:
(i) are of the kind described in paragraph 40(1)(g); and
(ii) taken together are for an amount of at least $10,000.

This section of the Bankruptcy Act also says that the judgments or money orders cannot be more than six (6) years old.

So, if you have a judgment(s), or money order(s), for more than $10,000.00, which are less than six (6) years old – then you can apply for a bankruptcy notice.

Apply for a Bankruptcy Notice at AFSA

Before applying for a bankruptcy notice you must perform a bankruptcy search.  A search of the Bankruptcy Registry will determine if this debtor is already bankrupt.

If the debtor is not already bankrupt, then you can apply for the bankruptcy notice.

The Australian Financial Security Authority (“AFSA”) is the Official Receiver, being the agency that issues bankruptcy notices.

It is vitally important that the bankruptcy notice be completed correctly.  One of the reasons that a bankruptcy notice can be set-aside is for “other reasons” – those other reasons may include:

1. An irregularity or defect in the notice;
2. The amount being claimed exceeds the amount allowed to be claimed;
3. There is a mistake in the names of the creditor or the debtor; and/or
4. The notice has been completed incorrectly.

It is important to correctly set-up the application for a sequestration order right from the start, and not to give your debtor any room to attempt to set this aside. 

Serve the Bankruptcy Notice on the Judgment Debtor

Once the notice has been correctly completed and provided by AFSA you then need to serve that notice on the debtor.

Incorrect service of the notice is another reason that a debtor can attempt to get the notice set-aside, or attempt to defeat your application for a sequestration order.

Section 16.01 of the Bankruptcy Regulations 1996 (CTH) says:

(1) Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be:
(a) sent by post, or by a courier service, to the person at his or her last-known address; or
(b) left, in an envelope or similar packaging marked with the person’s name and any relevant document exchange number, at a document exchange where the person maintains a document exchange facility; or
(c) left, in an envelope or similar packaging marked with the person’s name, at the last-known address of the person; or
(d) personally delivered to the person; or
(e) sent by facsimile transmission or another mode of electronic transmission

So, you can serve a debtor by post, courier, document exchange, delivered to the address, personally, facsimile or other electronic transmission.

Service will need to be proved.  An affidavit of service will need to be drafted.

Once correctly served, the debtor has twenty one (21) days to comply with the notice, or attempt to set it aside.

Failure to do so means that they have committed an act of bankruptcy, allowing you to commence proceedings by presenting a creditor’s petition.

Section 40(1)(g) of the Bankruptcy Act 1966 (CTH) says:

(1) A debtor commits an act of bankruptcy in each of the following cases…
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia–within the time specified in the notice…
comply with the requirements of the notice or satisfy the Court that he or she has a counterclaim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained.

File a Creditor’s Petition with the Federal Court

Once the debtor commits an act of bankruptcy and all of the requirements above are satisfied, you can apply to the Federal Circuit Court, by way of a creditor’s petition, for a sequestration order.

The filing of a creditor’s petition is just like any other application essentially.  We will need to file an application (petition), an affidavit in support of the application, affidavit of service of the notice, and consent to act as trustee (from a trustee in bankruptcy).

Then before the hearing, we will need to provide the Federal Circuit Court with further affidavits.

If all of the steps have been completed correctly, then the Federal Circuit Court will issue a sequestration order, forcing the debtor into bankruptcy.

It is vitally important that all of these steps are completed correctly by a professional bankruptcy solicitor.

Our lawyers can also give you advice and assistance in relation to voidable transactions in bankruptcy.

Bankruptcy may be the best way to enforce your judgment debt against your debtor

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