Bankruptcy – Opposing a creditor’s petition

This factsheet should be used if you have been served with a creditors petition but do not agree that you should be made bankrupt.

If you do not dispute the debt and cannot reach an agreement with the creditor to pay the debt by instalments, you may consider agreeing to a sequestration order being made against you. If you choose this option then you do not need to participate in the court proceedings.

More general information about bankruptcy and its consequences can be found on the Australian Financial Security Authority’s website.

In this factsheet:

• “court” means the Federal Circuit Court
• “the Act” is the Bankruptcy Act 1966(Cth)
• “the Rules” are the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth)
• “the FCC Rules” are the Federal Circuit Court Rules 2001 (Cth)

The steps to oppose a creditor’s petition are:

1. consider whether you have grounds to oppose the petition;
2. prepare, file and serve your documents; and
3. appear at the hearing of the petition.

Time limits

Documents opposing a creditor’s petition need to be filed with the court and a sealed copy (which is a copy stamped by the Court Registry) served on the creditor at least 3 business days before the date fixed for the hearing of the petition (rule 2.06 of the Rules).

Important points to keep in mind

• A creditor’s petition can only be brought by a creditor who you currently owe at least $10,000. This amount can be made up of two or more debts and two different creditors can join together to bring a creditor’s petition if together they are owed at least $10,000 (s44(1)(a) of the Act).
• A creditor’s petition can only be brought against you if you have committed an act of bankruptcy (s43 of the Act) (see below).
• A creditor’s petition must be filed in the court within 6 months from the date of the act of bankruptcy relied upon (s44(1)(b) of the Act).
• A creditor’s petition must be personally served on the debtor unless the court makes an order for service to be done in a different way. Personal service means that the document must be taken to the person, the person must be identified as the person named on the document, and the document handed to them. If the person refuses to take the document, the person serving it may put the document down in the presence of the person to be served and tell the person what the document is (rule 6.07 of the FCC Rules).
• A creditor’s petition lapses 12 months after it has been filed with the court and cannot be acted on by the creditor without the permission of the court.

Step 1 – Do I have grounds to oppose the petition?

Section 52 of the Act sets out the matters that have to be proved by the creditor before the court will make an order declaring someone bankrupt. These are that: the debt is a liquidated sum due at law or in equity; the debt on which the creditor is relying is immediately payable and still owing; an act of bankruptcy was committed; and the creditors petition was properly served. If the creditor cannot provide proof of these things then the court may dismiss the petition.

Even if all of the above can be proved, there are other grounds on which the petition can be opposed. These include:

• You did not commit the act of bankruptcy set out in the creditors petition;
• You do not owe the money claimed by the creditor;
• You are able to pay all your debts (you are not “insolvent”); or
• Any “other sufficient cause”.

You will need to provide proof to the court about the ground you say exists to convince the court not to make a sequestration order.

You did not commit an act of bankruptcy

The act of bankruptcy that the creditor says was committed will be set out in the creditors petition. The most common act of bankruptcy relied upon by creditors is the failure of a person to comply with a bankruptcy notice (s44(1)(g) of the Act). A bankruptcy notice must be based on a debt arising from a final order of a court (a judgment debt).

If you have been served with a creditors petition that states the act of bankruptcy relied upon is your failure to comply with a bankruptcy notice and you never received the bankruptcy notice or you received the bankruptcy notice but paid the debt or came to another arrangement with the creditor for payment of the debt (like a payment plan), you may have grounds to oppose the petition.

“I never received a bankruptcy notice”

To know if you can successfully rely on the fact that you never received the bankruptcy notice there are a number of different factors you will need to consider. The starting point is the affidavit of service of the bankruptcy notice. This should have been filed by the creditor with the creditors petition and served on you along with it. The affidavit of service will tell you how the creditor says you were served with the bankruptcy notice.

It is important to know that it is not necessary for a bankruptcy notice to be personally served. A bankruptcy notice may be validly served personally, by ordinary pre-paid post or by hand delivery to your address, as last known to the creditor. In some circumstances, it can also be served electronically (eg fax or email).

If you wish to dispute that a bankruptcy notice was served on you, then:

• In the case of personal service, you will need evidence to show that the information set out in the affidavit of service of the bankruptcy notice is incorrect. This will probably involve obtaining affidavits from witnesses or producing documentary evidence, like a payslip or shop receipt; or
• In the case of service by post or by hand delivery to your last known address, you will need to prove that the documents were not delivered to that address. The fact that you did not receive the document is not sufficient evidence that the document was not in fact delivered. This can be difficult to prove. You should also consider whether the creditor has provided sufficient proof that the bankruptcy notice was posted.

“I complied with the bankruptcy notice”

There are two ways to comply with a bankruptcy notice:

1. To pay the amount set out in the bankruptcy notice in full; or
2. To come to an arrangement to the creditor’s satisfaction.

Either of these must be done within the time for compliance set out in the bankruptcy notice (usually 21 days from the date of service).

To comply with the bankruptcy notice, any payment of the debt must be made in full, with cash or its equivalent and be unconditional.

You can also satisfy a bankruptcy notice by coming to some other arrangement with the creditor. This could include an agreement to pay the debt by instalments. For more information about bankruptcy notices, see the LawRight factsheet Bankruptcy – setting aside a bankruptcy notice.

You don’t owe the money to the creditor

As stated above, a bankruptcy notice must be based on a final order the creditor has obtained against you (“judgment debt”). If you dispute that you owe the judgment debt, in some circumstances you can ask the court considering the creditors petition to “go behind” the judgment.

Generally, the court will only do this where the judgment in question is a default judgment. Except in cases of fraud, collusion or a miscarriage of justice, the court will usually refuse to go behind a judgment where you defended the proceedings and a decision was made on the merits.

If you are asking the court to go behind a default judgment you will need to provide proof that shows you do not owe the debt to the creditor. Time permitting you should also demonstrate that you have taken steps in the court where the judgment was obtained to have the default judgment set aside (cancelled), and explain why you have not taken steps to have the judgment set aside at an earlier time, including when the bankruptcy notice was served on you. For more information see the LawRight factsheet Default and summary judgments.

You are solvent

To prove you are solvent, you will need to demonstrate to the court that you are able to pay your debts when they fall due from your own resources. The court will look at your financial position as a whole – not just the debt owed to the creditor who lodged the creditors petition.

It is not enough to simply show that your assets exceed your debts. You need to be able to show that you can turn your assets into cash within a relatively short period of time. For example, you may be able to show that you are solvent on paper because you have a valuable asset like a house, but if you haven’t yet put your house on the market then the court may not consider that you are solvent.

Whether you are solvent is a question of fact for the court to decide based on the evidence you can provide about your financial position. If you do not dispute the debt owed to the creditor, the court will usually assume that the reason you have not paid the debt is because you cannot afford to.

Any “other sufficient cause”

This ground is concerned with exceptional circumstances that outweigh the public interest in making a sequestration order against a person who is insolvent. The categories that would satisfy this ground are not clear and it is very difficult to succeed on this ground. In considering whether your argument might be successful, you should consider the findings set out by the Australian High Court in Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 at 521 that:

1. the creditor has an absolute right to found a petition for a sequestration order on a statutory act of bankruptcy;
2. an ulterior private purpose is not necessarily a fraud on the court;
3. a by-motive unless there be a fraud is not a bar; and
4. an abuse of process does not exist unless the remedy is unsuitable and would enable the person obtaining it fraudulently to defeat the rights of others, whether legal or equitable.

Step 2 – Preparing your documents

To oppose the creditor’s petition you will need to prepare, file and serve the following documents:

• Notice of Appearance (Form B4);
• Notice stating grounds of opposition to application, interim application or petition (Form B5); and
• Affidavit.

Notice of appearance

This form tells the court that you are going to go to the hearing of the petition. Where the form asks you for an address for service, you need to include a street address within Australia and a telephone number at which you can be contacted during normal business hours. Your address for service needs to be where you are happy for both the court and the other party to send you any relevant court documents.

Notice stating grounds of opposition to application or petition

In this form, you tell the court the ground/s on which you are opposing the petition. Each ground should be stated in one sentence. It is not appropriate to put your reasoning or the factual details of each ground in this form – this information will go in your affidavit (see below).

Examples how to set out your grounds are:

“The debtor did not commit the act of bankruptcy relied on by the creditor.”

“Within 21 days of the service of the bankruptcy notice, the debtor made an arrangement to the creditor’s satisfaction for the settlement of the debt.”

“The debtor has applied to Brisbane Magistrates Court to have the judgment debt the subject of the petition set aside and has a good defence to the claim filed in the Brisbane Magistrates Court by the creditor such that the petition should be dismissed.”

Affidavit

Your affidavit will set out the facts which prove the grounds on which you want to oppose the petition.

For more information about preparing an affidavit, see the LawRight factsheet Drafting an Affidavit.

Filing

Filing is the process of lodging your forms with the court and getting them stamped. You can file your documents online or in person at the Federal Circuit Court Registry.

Service

You will need to serve a stamped copy of your documents on the creditor at least 3 business days before the dated fixed for the hearing of the petition.

You can serve the documents by either delivering them personally or sending them by ordinary pre-paid post to the address for service of the creditor. The creditor’s address for service should be shown in the footer at the bottom of the first page of the creditors petition. If you decide to post your documents, you will need to allow enough time for the documents to arrive within the required time frame.

Step 3 – Attending the hearing

You will need to attend the hearing of the petition, the date and time of which is shown on the first page of the creditor’s petition. The Federal Circuit Court’s brochure on bankruptcy has some more information about this. You can also read our factsheet Court etiquette.

Financial Advice

If you do not think you have any grounds to oppose the petition, or if you are not sure whether you should spend the time and money to oppose the petition because of your wider financial circumstances, you should seek financial advice.

For free financial counselling you can contact:

• National Debt Helpline on 1800 007 007

• Salvation Army on 1300 363 622

The information in this resource is for general information purposes only and should not be relied on as legal advice. If you need legal advice, please contact LawRight or another lawyer. LawRight can only give advice to people who are eligible for our services.