The Law Handbook 2024

Chapter 5.3: Understanding bankruptcy 381 This can occur if the time for compliance has not expired and either: • proceedings to have the judgment or order set aside have been instituted bona fide (with an honest intention); or • an application to set aside the bankruptcy notice has been filed with the Federal Court or Federal Circuit Court (s 41(6A)). The court will not extend time if thinks that the proceedings to set aside the judgment or order: • have not been instituted bona fide (with an honest intention); or • are not being prosecuted with due diligence. After the bankruptcy notice has expired If the debtor fails to comply with the requirements of the bankruptcy notice, an act of bankruptcy has been committed and the creditor can then use this as grounds petition the court for the bankruptcy of the debtor. The creditor can then file a creditor’s petition and serve it on the debtor. The petition will contain the date of the bankruptcy hearing. At the hearing of the petition, the Federal Court or Federal Circuit Court may make a ‘sequestration order’ (an order giving the trustee control of the debtor’s property) and make the debtor bankrupt (s 43). Contesting the creditor’s petition at the hearing A person who intends to oppose a creditor’s petition must file and serve a notice of appearance, a notice stating the grounds of opposition, and an affidavit in support of the grounds of opposition at least three days before the hearing date, or at the hearing with leave of the court (r 2.06 Federal Circuit Court (Bankruptcy) Rules 2016 (Cth)). Therefore, it is important to get advice quickly if you have been served with a creditor’s petition. A debtor can sometimes avoid becoming bank­ rupt by arriving at court on the morning of the hearing for the sequestration order with the money in hand. In such circumstances, the debtor is usually required to prove to the court that they are solvent, for the petition to be withdrawn. The debtor might be required to give evidence to the court or produce an affidavit. Filing a statement of affairs Once the sequestration order is made, the debtor must file a statement of affairs with the Official Receiver (AFSA). This must be done in the prescribed form within 14 days of being notified of the bankruptcy and verified by affidavit. A copy must be given to the trustee (s 54 Bankruptcy Act). Examinations of the bankrupt and others There are three ways a bankrupt can be examined under the Bankruptcy Act: 1 The court can summons the bankrupt, or an ‘examinable person’, to be examined in public in relation to the bankruptcy before or after the end of the bankruptcy (s 81). 2 A bankrupt or any other person can be required by written notice to ‘give evidence’ to the Official Receiver (AFSA) (s 77C). 3 The trustee can require a bankrupt to attend a meeting of creditors (s 77(1)(c)). Examination under section 77 Section 77 of the Bankruptcy Act concerns ‘duties of the bankrupt as to discovery, etc. of property’. Questions should not be put merely for the purpose of showing that the person has committed offences against the Bankruptcy Act. It is unlikely that a consumer debtor who has not transferred property within the five years before the commencement of bankruptcy would be examined. If the trustee detects evidence that the bankrupt might have committed an offence under the Bankruptcy Act, the trustee might refer the matter to AFSA. If AFSA believes that the offence can be substantiated, the matter will be referred to the Director of Public Prosecutions, which will then decide whether to proceed with the prosecution. Examination under section 81 The registrar or the court might summons the bankrupt or a person associated with the bankrupt for a public examination (s 81 Bankruptcy Act). There might, for example, be a suspicion that assets have been hidden or that an offence has been committed. Either a creditor, the trustee or the Official Receiver (AFSA) might apply to the court to summons the bankrupt for an examination.