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Bankruptcy Notices & Creditors Statutory Demand

WHAT HAPPENS ONCE THE COURT ORDERS THAT SOMEONE MUST PAY ME MONEY?

Onc e you receive a Judgment from a Court or a Ruling from the Queensland Civil and Administrative Tribunal that orders someone or a company to pay you money this Judgment or Ruling is enforceable as a money order of the Court. There are various types of enforcement proceedings that may be undertaken to enforce a money order.

Two of these are the issuing of a Bankruptcy Notice or Creditors Statutory Demand. These two options are outlined in detail on this page. For information on Enforcement Hearings and Enforcement Warrants please refer to our Debt Recovery page on the website.

BANKRUPTCY

If you have a money order of the Court issued against an individual, you can use that money order to issue a Bankruptcy Notice to the individual. A Bankruptcy Notice is issued under the Bankruptcy Act 1966.

Under the Bankruptcy Act 1966 the person who owes you the money is required, within 21 days after service upon them of the Bankruptcy Notice, to either:

• pay you the amount of the debt; or
• make an arrangement to your satisfaction for settlement of the debt.

If within the 21 day period the individual does not pay you the debt or make arrangements to settle the debt with you, you can make an application to have the individual declared Bankrupt. This involves the making of a Creditors Petition which is filed in the Federal Magistrates Court.

Once a Creditors Petition is filed in the Federal Magistrates Court the matter is set down for a Hearing. At the Hearing the Court decides whether or not the individual has committed an act of bankruptcy. Among other things the Court will consider whether:

• the individual owes the money;
• the amount of debt shown in the Bankruptcy Notice is correct; and
• whether the individual is able to pay his debts.

If the Court finds that the individual has committed an act of bankruptcy they will be declared bankrupt. The Trustee as listed in the Creditors Petition will then be appointed as the Trustee of the bankrupt’s estate once the bankrupt individual is declared bankrupt by the Court.

The Trustee in bankruptcy will then examine the individual’s affairs to find any assets so that all creditors of the individual can be paid if possible.

STATUTORY DEMAND – LIQUIDATION OF A COMPANY

If you have a money order of the Court issued against a company, you can use that money order to issue a Creditors Statutory Demand to the company. A Creditors Statutory Demand is issued under the Corporations Act 2001. Experience has shown that most company directors do not understand and appreciate the significance of Statutory Demands and the potential of Winding Up Applications being made, when served with a Statutory Demand. Most company director believe that:

If proper steps are not taken quickly, a real risk exists that your company may be placed into liquidation.

A Creditors Statutory Demand must be served upon a Company correctly, state the amount of Debt owed and the circumstances under which it is owed.

A Creditors Statutory Demand requires the Company that it is issued to, within 21 days after service on the Company of the Creditors Statutory Demand, to either:

• pay you the amount of the debt; or
• make an arrangement to your satisfaction for settlement of the debt.

A Company alternatively may make an application claiming that:

• claims the statutory demand is defective in some way; or
• a genuine dispute exists about the debt claimed and have the Statutory demand set aside on this basis.

In either case the application MUST be filed and served within 21 days of service. There is no provision to extend this time, even if the issuing party agrees to extend the 21 day period. The Corporations Act 2001 does not allow for this extension of time.

If you fail to make application to set aside the Statutory Demand or reach an agreement in relation to the repayment of the debt claimed, your company will be deemed to be insolvent, even if you have evidence, such as accounting records, indicating otherwise.

A party relying on non-compliance with a Statutory Demand will or can proceed to issue a Winding Up Application to wind up your company. It will also file with Australian Securities and Investments Commission a Notice of Intention to Wind Up your company. This then becomes public information.

This process will leave your company in a precarious position because of the adverse publicity by having your company named in public records of ASIC, stating “An Application for Winding Up of the Corporation was filed on .../.../..." and the adverse publicity that will result in an advertisement being placed in a national newspaper advising of the hearing date for the Winding Up.

The inconvenience does not end there. You would have incurred substantial legal costs in having representation in relation to substitution by many creditors.

If your company receives a Statutory Demand, act IMMEDIATELY and seek legal advice.

Ferguson Cannon Lawyers have an experienced team of lawyers that will be able to assist you with all of your requirements relating to Bankruptcy and Liquidation. For any further queries please do not hesitate to contact Byron Cannon, Director, or Samuel Barber, Solicitor on 07 5443 6600, or email byron@fclawyers.com.au or sam@fclawyers.com.au.