In brief
Don’t get caught short after being served with a bankruptcy notice, which is a formal demand for payment. If you do not take action within 21 days of being served with a notice, you risk being made bankrupt. Payment in full after the 21 days has expired may not be enough to prevent an order being made bankrupting you.
What you need to know
- If you are served with a bankruptcy notice, you should seek advice immediately. Avoidance or delay may result in adverse consequences.
- Upon being served with a bankruptcy notice, you have 21 days in which to reach to an agreement with the creditor, or face bankruptcy.
- Seeking legal advice urgently upon being served is your best option to avoid bankruptcy.
Background
While you have 21 days to pay after being served with a bankruptcy notice, offering to pay in full after the 21-day period does not necessarily prevent you from being made bankrupt. As with the recent case of Richardson & Anor v Ford [2017] FCCA 1280, delaying action did not ensure a successful outcome.
The relevant facts of this case are as follows:
- A bankruptcy notice was served on Mr Ford by Bidvest Australia Pty Ltd (Bidvest) for $58,439.04. Mr Ford ignored the bankruptcy notice and did not respond within 21 days.
- A creditor’s petition was filed by Bidvest. This is the proceeding by which the Court can make orders to appoint a Trustee in Bankruptcy to a person’s estate.
- Meanwhile, another bankruptcy notice was served on Mr Ford by Mr and Mrs Richardson for $23,370. Again, Mr Ford ignored this bankruptcy notice and did not respond within 21 days.
- Prior to the hearing of the Bidvest Bankruptcy application, Mr Ford made an offer to settle Bidvest’s debt. The offer was accepted.
- Mr and Mrs Richardson sought to be substituted in the Bidvest Bankruptcy Application.
- Mr Ford’s lawyer contacted Mr and Mrs Richardson’s lawyer and told them that he held the amount of the debt claimed in his trust account and was willing to pay it to them if they withdrew the creditor’s petition. Essentially Mr Ford was offering to pay the debt if they agreed not to bankrupt him.
- Mr and Mrs Richardson rejected the offer on the grounds that they believed he was insolvent.
The Court’s findings
The Court ordered that Mr Ford should be bankrupted and found as follows:
- Mr Ford had failed to pay the amount within 21 days of being served with a bankruptcy notice and failed to bring proceedings to have the bankruptcy notice set aside within this time.
- Mr Ford was not forthright about his financial position.
- Even if Mr Ford’s assets exceeded his liabilities, it did not mean he could satisfy his debts – he needed to show that his assets were readily realisable. There was no evidence of this.
A sequestration order was made against Mr Ford and a Trustee in Bankruptcy appointed to his estate.
Lessons
Do not ignore a bankruptcy notice!
After being served with a bankruptcy notice, and within 21 days if you do not pay the debt or bring proceedings to set aside the bankruptcy notice:
- Your options are limited and you may be made bankrupt.
- A creditor is entitled to refuse to accept payment of the debt even if you offer to pay in full. The consequence of this is that orders can still be made resulting in your bankruptcy.
- The Court may look into your financial affairs to determine whether you are solvent.
Conclusion
When you are served with a bankruptcy notice, you need to get advice quickly. Once the 21-day period has elapsed after being served with a Bankruptcy notice, your options are limited. The case of Richardson & Anor v Ford [2017] FCCA 1280 demonstrates that even if you offer to pay the full amount of the debt after this 21-day period has elapsed, you can still be made bankrupt.
If you are served with a bankruptcy notice, seek legal advice immediately.
