In this practice area
Bankruptcy notices and creditor's petitions against individual debtors, applications to set aside bankruptcy notices, and trustee recovery claims under the Bankruptcy Act 1966.
When bankruptcy proceedings arise
Bankruptcy is the formal insolvency process for individuals. A creditor with a judgment against an individual who will not or cannot pay may use bankruptcy to place the debtor's assets under the control of a trustee for the benefit of all creditors. Debtors may also enter bankruptcy voluntarily or make a personal insolvency agreement with creditors.
We act mainly for creditors using the bankruptcy process to recover judgment debts, including debts owed by guarantors and sole traders, and for individuals responding to bankruptcy notices and petitions.
The legal framework
Under the Bankruptcy Act 1966 (Cth), a creditor holding a final judgment or order for at least $10,000 may apply to the Australian Financial Security Authority for a bankruptcy notice. The judgment must generally be no more than six years old, and the notice must be served within six months of issue. The debtor has 21 days after service to pay or make an arrangement to the creditor's satisfaction. Failing to comply is an act of bankruptcy.
The creditor can then present a creditor's petition to the Federal Circuit and Family Court of Australia or the Federal Court, relying on an act of bankruptcy committed within six months before the petition. If the court makes a sequestration order, a trustee is appointed. Bankruptcy usually lasts three years. The trustee may recover property transferred before bankruptcy, including transfers for less than market value, transfers made to defeat creditors, and preferences paid to creditors within six months before the petition.
How these matters typically run
A debtor served with a bankruptcy notice may apply to set it aside, most commonly on the ground of a counter-claim, set-off or cross demand equal to or greater than the judgment debt that could not have been raised in the original proceedings. That application must be made within the time for compliance. At the petition hearing, the creditor must prove the debt, the act of bankruptcy and service, and the court must be satisfied the debtor cannot pay their debts. Debtors often seek adjournments to pay or propose arrangements.
How GopherWood Lawyers acts
For creditors, we check that the judgment is suitable for a bankruptcy notice, manage service and move promptly to a petition if the notice is not complied with, while keeping settlement options open. We also advise on what a trustee may recover, which can make bankruptcy worthwhile even where the debtor's visible assets look limited. For individuals, we assess any grounds to set aside a notice or oppose a petition, and the alternatives available under Parts IX and X of the Act.