If a debtor will not or cannot pay back a debt, it may be in the creditor’s interest to force the debtor to declare bankruptcy. The advantage of this is that a government sanctioned trustee will take control of the bankrupt debtor’s finances and manage making debt payments to the creditor.
If a creditor wants a debtor to become bankrupt, the creditor has to prove that a so-called “act of bankruptcy” has been committed by the debtor. The most common way of doing so is to send the debtor a bankruptcy notice. If not complied with, the debtor is considered to have committed “an act of bankruptcy”.
• Apply for a bankruptcy notice, which is issued by the Official Receiver. The application is made through a specific form online at the Australian Financial Security Authority’s (AFSA) website, at https://www.afsa.gov.au/online-services. The application fee is $470. A copy of the judgment or order, a certificate of the judgment or order or a copy of the entry of the judgment or order that is sealed by the court or certified should be attached to the application.
• When the bankruptcy notice has been endorsed, it will be sent back to the creditor. The creditor then has to serve the notice to the debtor within six months from the date of issue. The creditor can apply for an extension of the six month time length, either through the online service or in writing sent to the Official Receiver. The cost for such an application is $160, and the creditor must explain the reasons for the applications and which measures have been taken in order to serve the debtor. Note that there are specific rules regarding what constitutes an effective service.
• After the debtor has been served, he or she has to comply with the bankruptcy notice within 21 days. Otherwise, an “act of bankruptcy” has been committed. The debtor can apply to extend the time length or dispute the bankruptcy notice. Both these applications are made to either the Federal Court or Federal Circuit Court.
• You can only send a bankruptcy notice if you are seeking a final judgment or order for at least $5,000.
When an “Act of Bankruptcy” has been Committed:
• If an “act of bankruptcy” has been committed, the creditor can file a creditor’s petition to the Federal Court or the Federal Circuit Court with a request to declare the debtor bankrupt. The application has to be made on a specific form. If the application is made to the Federal Court or to the Federal Circuit Court by a publicly listed company, the fee is $4,615. If it is made by a company, the cost is $3,075, and if by another type of party the cost is $1,280. Both courts have concurrent jurisdiction, and the procedures, rules and forms are the same.
• When the court has accepted the creditor’s petition, the court will set a hearing date for a sequestration order. The day before the hearing, it is mandatory for the creditor to search the National Personal Insolvency Index, NTII, to learn whether there are any other insolvency proceedings ongoing against the debtor. The fee for the search is $12.
• One or more hearings in the matter will take place. The court will make a sequestration order against the debtor if it concludes that the correct procedure has been followed and an act of bankruptcy has been committed. If the order is made, the debtor will become bankrupt.
• A trustee will be appointed for the administration of the debtor’s financial affairs. If the creditor desires to request a special trustee to be appointed, a special form must be filed at the same time as when a copy of the creditor’s petition is filed with the Official Receiver.
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