Debtor’s petition: Voluntary bankruptcy
Documents to be completed
A A person who owes a debt. who wants to go bankrupt must complete:
- a debtor’s petition for When a debtor who cannot pay their debts has their money and property taken over and managed by a trustee who uses it to pay back creditors. The debtor is then called a bankrupt.;
- a statement of affairs; and
- an acknowledgment that the debtor has read the ‘prescribed information’.
Debtors can obtain a debtor’s petition form containing these three documents from the AFSA office or website (www.afsa.gov.au).
Filing or ‘presenting’ the documents
After completing the documents, the debtor needs to send them to AFSA. There is no minimum amount that has to be owed before a debtor files a petition for bankruptcy.
When does the debtor become bankrupt?
When the Official Receiver (AFSA) accepts the debtor’s petition, and allocates a bankruptcy number, the debtor becomes bankrupt. The bankruptcy is Treated by the law as if something is the case, even if that is not the reality. For example, children may be deemed to have the same home as their parents, whether they actually live there or not. Or a person may be deemed to have given their consent to something if they hear about it and do not object. Compare rebuttable. to take effect from midnight of the night before the debtor’s petition is accepted (s 57A Bankruptcy A written law made by parliament. Also called an ‘Act of parliament’, ‘statute’ or legislation.) – this extends the bankruptcy by one day. The Official Receiver (AFSA) generally accepts the petition on the day it is received or the day after. AFSA usually processes a debtor’s petition within 24–48 hours.
Assistance to complete documents
Low-income debtors can get free assistance from financial counselling services to complete a statement of affairs. Financial counsellors A document that sets out what a person wants to happen to their money and other property after they die. also assess whether there are any options available for a debtor other than bankruptcy. For a list of services, see Chapter 5.4: Financial counselling services.
What happens after the documents are sent to AFSA?
Once the debtor is bankrupt, the trustee might ask the debtor to come in for an interview. However, Under the Australian Consumer Law, a person who buys goods or services for less than $40 000 or for personal or home use. bankrupts with no assets are not usually required to attend a trustee’s office for an interview. The trustee might also sometimes ask for copies of contracts and documents relating to the debts, and might require the bankrupt to hand over their passport. Again this is unlikely to happen to a consumer bankrupt with no assets.
Declaration of intention to present a debtor’s petition
A debtor may present to the Official Receiver (AFSA) a declaration of an intention to present a debtor’s petition (Part IV Division 2A Bankruptcy Act). This stops a The person or organisation to whom a debtor owes a debt. from taking enforcement action in relation to a Money that is owed by one person or business to another., which would be provable in bankruptcy, for the ‘stay period’, which is usually the ‘Failure to do something that is legally required. For example, a person who fails to make a payment on their car is in default on the loan; if they continue to be in default the creditor may issue a default summons to take the debtor to court. period’ of 21 days (s 5). The idea is to allow a debtor and their creditors time to make an arrangement to pay the debts and to avoid the need for bankruptcy.
It is important to note that the presentation of a declaration of intention to present a debtor’s petition is an ‘act of bankruptcy’ upon which a creditor can petition for bankruptcy if no agreement is reached (s 40(1)(da)). The 21-day stay will not stop:
- a A person or company that is owed money and has the right to sell a debtor’s property to cover any money that has not been paid by the due date. The payment is secured by a mortgage, charge or lien over the property of the debtor. repossessing secured property;
- a creditor’s petition being filed; or
- a An order taking away a bankrupt’s property so that it can be used to pay off their debts. by a An independent body that hears legal claims brought by parties and decides between them. Serious cases are heard by a judge and jury, or just a judge. Less-serious cases are heard by a magistrate., which makes a person bankrupt.
In many cases, the presentation of a declaration of intention to present a debtor’s petition may harm a debtor’s position. Therefore, it is recommended that advice be obtained before presenting such a declaration and careful thought be given to the debtor’s other options.
Creditor’s petition: Involuntary bankruptcy
If a debtor owes $10 000 or more to a creditor (the ‘Found in a statute of delegated legislation. For example, a statutory authority or body is aperson or organisation that has special powers given by parliament to do work for the public benefit. minimum’ defined in section 5 of the Bankruptcy Act; prescribed in regulation 10A of the Bankruptcy Regulations), the creditor can To make people obey a law or the terms of an agreement, using police powers or court orders. the debt by taking bankruptcy proceedings against the debtor (s 44). To do this, the creditor must file a creditor’s petition in either the Federal Court or the Federal Circuit Court.
An action of a debtor that shows they cannot pay what they owe to their creditors.
At the The time and place at which a court or tribunal hears the parties argue their case and makes a decision. of the creditor’s petition, the creditor must establish that the debtor committed an act of bankruptcy within the six months before the petition was filed in court. An act of bankruptcy is an action of a debtor that shows an inability to pay their creditors. Section 40 of the Bankruptcy Act lists over 30 actions that are considered to be acts of bankruptcy. Failure to comply with a bankruptcy notice (s 40(1)(g)) is the main act of bankruptcy used by creditors.
A creditor who has obtained a court order against a debtor can apply to the Official Receiver (AFSA) for a bankruptcy notice. Part 4 Division 1 of the Bankruptcy Regulations prescribe the form of the bankruptcy notice. Before a bankruptcy notice can be applied for, the final order(s) must be for at least $10 000 and be less than six years old (s 41(3)(c) Bankruptcy Act). The bankruptcy notice is attached to a copy of the court order and demands payment of the debt within 21 days of Formal delivery of legal documents to a person to tell them there are court proceedings against them which they must defend, or to make sure a witness in a case knows when they have to go to court to give evidence..
If the debtor does not pay within the time period, they will have committed an act of bankruptcy and the creditor will then be able to file
a creditor’s petition.
Extending time for compliance
If a bankruptcy notice has been served on a debtor, the debtor can apply to the Federal Court or the Federal Circuit Court to extend the time for compliance with the notice. 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; 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 it thinks that the proceedings to set aside the judgment or order:
- have not been instituted Honest and genuine. (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 for petitioning 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 A document that presents written evidence in a court case, setting out what a witness says is true. The witness must swear that it is true and correct in front of an authorised official. This can be done on oath or by affirmation. The person in whose name the document is sworn is called the deponent. 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 bankrupt 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 Having enough money to pay all your debts when they are due., for the petition to be withdrawn. The debtor might be required to give Material presented to a court to prove or disprove a fact. It can include what witnesses say as well as documents and other objects. 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:
- The court can A formal document issued by a court which says someone must appear in court on the date stated in the document. See also service; writ. 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). ‘Examinable person’ includes a person who might be able to give information in relation to the bankruptcy (s 5).
- A bankrupt or any other person can be required by written notice to ‘give evidence’ to the Official Receiver (AFSA) (s 77C).
- The trustee can require a bankrupt to attend a meeting of creditors (s 77(1)(c)). These meetings are not common and can be held at the request of the creditors or the Power to choose whether to do something or not. For example, a judge may have discretion to allow a party extra time to complete a document if it would be unfair to enforce the legal time limit. of the trustee.
Examination under section 77
Section 77 of the Bankruptcy Act concerns ‘duties of the bankrupt as to Compulsory sharing of facts and documents between parties before a case is heard in court., 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 A criminal act prohibited by state or commonwealth criminal law. An offence is either a summary offence (minor) or an indictable offence (serious). 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 The party presenting evidence in court on behalf of the state or Commonwealth government against a person accused of committing a crime. Also called the Crown..
The Official Receiver (AFSA) can require any person to produce documents relevant to the bankruptcy (s 77C).
It is recommended that anyone who is summonsed should obtain legal representation. Section 77C of the Bankruptcy Act does not specifically allow a person who is examined to be represented by A lawyer who appears in court and speaks on behalf of their client, often a barrister. or by a A legal practitioner (lawyer) who sees clients and opens files to deal with their legal matters but usually does not appear in court. See also barrister., but it is based on section 264 of the Income Tax Assessment Act 1936 (Cth) where the Law based on the reasons judges have given for their decisions in court cases, and which judges in later, similar cases are bound to follow. Under the doctrine of precedent, lower courts, such as the Magistrates’ Court of Victoria, are bound to follow relevant decisions of higher courts, such as the Supreme Court of Victoria. Case law is also called ‘common law’ and ‘judge-made law’. seems to assume that the person who is examined is entitled to legal representation. AFSA generally allows a person who is examined to be represented by counsel.
Examination under section 81
The The officer in charge of the administrative section of a court, which is known as the registry. See also prothonotary. 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.
At the public examination in court, the trustee or lawyer or representative questions the bankrupt. Creditors are allowed to ask the bankrupt questions if the registrar is satisfied the questions are relevant.
The examination might be held to obtain further details of the bankrupt’s assets, or of the bankrupt’s past and present affairs, or to ascertain whether the bankrupt has committed an offence.
A person who is summonsed for an examination is entitled to legal representation. This is important as the transcript of the public examination might be admissible in evidence in other proceedings.