Setting aside a bankruptcy notice

If you have been served with a bankruptcy notice, and you acknowledge the debt is payable, you should pay the amount that is stated on the notice, if at all possible. Doing so will avoid you committing ‘an act of bankruptcy’ upon which the creditor could rely to bankrupt you.

If you dispute that the debt is payable, or you have other grounds to do so, your other option is to take steps to set aside a bankruptcy notice.

This typically depends on how serious your matter is and what the dispute relates to. For a payment plan for small debts, your accountant should be able to negotiate with the ATO on your behalf without any difficulty.

You should consider engaging a lawyer if your issue ticks any one of the following categories:

• The dispute involves a typically large or more complex debt (or your accountant cannot achieve a resolution on their first attempt)
• There is a risk of bankruptcy or liquidation (now or in the foreseeable future)
• You are considering external mediation or in-house ATO facilitation to resolve the dispute
• You have been asked to an interview or the ATO have otherwise asked you questions which may incriminate you
• You require the ATO to make a decision
• You have received an unfavourable ATO decision and wish to dispute it
• Director guarantees or indemnities exist
• You have received a statutory demand (or expect to)
• You have received a bankruptcy notice (or expect to)
• You have received a garnishee notice (or expect to)
• You have received a director penalty notice (or expect to)
• You have debts or other compensation owed to you that could be recovered
• Your accountant or other financial advisors have given you negligent advice or have missed the due date of lodgement
• You are being audited and suspect there may be issues
• You are being prosecuted
• Anything else involving a legal issue

Grounds to set aside a Bankruptcy Notice

The debtor does not owe the debt to the creditor

This may be purely a mistake as to the identity of the actual debtor, or there may be a genuine dispute about the debt itself (e.g. where the goods that were purchased on credit were defective and not fit for the purpose they were bought for?

The judgment the bankruptcy notice relies upon is being set aside

This means that the debtor has filed an application to set aside the judgment referred to in the bankruptcy notice because the debt underlying the judgment is disputed for reasons such as those given above.

Enforcement of the judgment is suspended

This order is usually sought pending the outcome of an application to set the judgment aside. It would be greatly prejudicial to the debtor to allow a creditor to rely upon a bankruptcy notice issued in circumstances where the underlying judgment has been stayed and may be overturned once the application to set it aside has been heard.

The debtor has a counterclaim, set-off or cross demand

For the debtor to establish this ground, they must show:

• They have a sufficiently arguable claim for an amount equivalent to or exceeding the judgment debt
• The claim is between the creditor who caused the bankruptcy notice to be issued and the debtor who received it
• The claim could not have been litigated in the proceeding in which the creditor’s judgment was obtained

Clear evidence of the debtor’s claim must be relied upon to establish this ground; merely asserting a claim on its own will not be enough.

The debt has been overstated

This ground speaks for itself. If it can be established that the judgment amount being relied upon in the bankruptcy notice has been overstated, that is clearly capable of misleading the debtor.

There is a defect or irregularity in the bankruptcy notice

Any defect in the form of the bankruptcy notice, the names of the debtor or creditor, the amount being claimed, or similar formal irregularity are all capable of misleading the debtor as to their obligations concerning the bankruptcy notice.

The bankruptcy notice has been incorrectly served

There are strict requirements for service of bankruptcy notices given the serious ramifications for the debtor who is meant to receive them. If these can be shown not to have been followed correctly, this is also a ground upon which the bankruptcy notice can be set aside.

Application to set aside a Bankruptcy Notice

If you have received a bankruptcy notice and consider any of the above grounds are available to you, you may have grounds to apply to the Federal Court of Australia or the Federal Circuit Court of Australia to have the bankruptcy notice set aside.

You must file your application to set aside the bankruptcy notice within the time specified in the bankruptcy notice for you to comply with it. Once that period expires, you will be deemed to have committed an act of bankruptcy and it is then too late to apply to set the notice aside.

The application will require the preparation of formal legal documents in the form of a Bankruptcy Form B2 Application and an Affidavit complying with the Bankruptcy Rules. This is a very technical and complicate area of law. It is therefore in your best interests to seek the assistance of a lawyer experienced in the area of bankruptcy law if you intend making an application to set aside a bankruptcy notice.

If you need assistance

This is a very technical and complicate area of law. It is therefore in your best interests to seek the assistance of a lawyer experienced in the area of bankruptcy law if you intend making an application to set aside a bankruptcy notice.

For more information on setting aside a bankruptcy notice, see our technical guide on Setting Aside a Bankruptcy Notice.

Call Gibbs Wright today about your bankruptcy matter for a confidential consultation to explore your options and legal rights.