Personal Bankruptcy (Creditor)

What happens if the debtor applies to set aside the bankruptcy notice?: The application and supporting affidavit must be served on the creditor within 3 days after filing (Federal Court (Bankruptcy) Rules 2016 r 3.02(5)). Filing does not by itself stop time unless the application relies on a counter-claim, set-off or cross demand, in which case time is deemed extended until the Court decides that question (s 41(7)); otherwise the debtor needs an extension order under s 41(6A). A creditor who opposes must file a notice of appearance (Form B4), a notice stating the grounds of opposition (Form B5) and an affidavit at least 3 days before the hearing (r 2.06).

How long does a creditor have to present a creditor's petition?: The petition must be presented within 6 months after the act of bankruptcy on which it is founded, and the debt must be a liquidated sum amounting to at least the statutory minimum (s 44(1)). A petition lapses 12 months after presentation unless the Court extends that period (s 52(4) and (5)).

Jurisdiction: The Federal Court of Australia and the Federal Circuit and Family Court of Australia (Division 2) have concurrent jurisdiction in bankruptcy (Bankruptcy Act 1966 s 27). Bankruptcy notices are issued by the Official Receiver (s 41(1)); applications to set aside notices and creditors' petitions are heard under the Federal Court (Bankruptcy) Rules 2016 or the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021.

The Process at a Glance: Confirm the client holds one or more final judgments or orders totalling at least the statutory minimum and less than 6 years old. Apply to the Official Receiver for a bankruptcy notice and serve it within 6 months of issue. Monitor the compliance period and respond to any application to set the notice aside. If the debtor does not comply, the act of bankruptcy is committed and the creditor's petition fork applies, with a 6-month limit for presenting the petition. At the hearing the Court requires proof of the matters stated in the petition, service and that the debt is still owing before it makes a sequestration order (s 52(1)). The bankrupt's property then vests in the trustee (s 58) and the creditor proves in the bankruptcy.

Key Legislation: Bankruptcy Act 1966 (Cth) ss 5 (statutory minimum and statutory period), 27 (bankruptcy courts), 40(1)(g) (act of bankruptcy on failure to comply with a bankruptcy notice), 41 (bankruptcy notices and extensions of time), 43 and 44 (sequestration orders and conditions for a creditor's petition), 52 (hearing and order) and 58 (vesting of property). Bankruptcy Regulations 2021 ss 10 (time for serving a bankruptcy notice), 10A (prescribed statutory minimum) and 13 (copies to the Official Receiver). Federal Court (Bankruptcy) Rules 2016 rr 2.04, 2.06, 3.02 and 3.03, with matching rules in the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021.

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