If a creditor intends to enforce an unpaid debt, the creditor is entitled to present a creditor’s petition to the court to recover the money owed. If the creditor’s petition is successful, the court will make a sequestration order. The trustee in bankruptcy then takes over the bankrupt’s estate for the benefit of the creditors.
Who Can Present a Creditor’s Petition?
Creditors can be individual creditors or a group acting as joint creditors. The total amount of the unpaid debt must not be less than $5,000, which could include small creditors acting jointly.
Secured creditors cannot present a creditor’s petition, unless to the extent that the amount owed exceeds the relevant security. Alternatively, if the secured creditor surrenders its security to the trustee in bankruptcy, the secured creditor can participate in the joint creditor’s petition.
Who Can be a Debtor?
A creditor’s petition can be presented to individuals, joint debtors and partners in a partnership.
The debtor must have some connection to Australia, including the following:
- Is personally present or ordinarily a resident in Australia; or
- Has a dwelling house or place of business in Australia; or
- Is carrying on business in Australia, whether personally or through an agent or manager; or
- Member of a firm or partnership that was carrying on business in Australia.
The debt has to be owed to the creditor and must be a liquidated sum, and cannot be, for example, an unliquidated claim for damages. A creditor should obtain a court judgment against the debtor to ensure that a debtor can’t dispute the debt (although these can potentially be set aside in certain circumstances).
For a creditor to present a petition, the debtor must have committed an act of bankruptcy within the six months immediately preceding the presentation of a creditor’s petition. This shows that a debtor is insolvent.
Acts of Bankruptcy
An act of bankruptcy usually involves not complying with a bankruptcy notice, which any creditor can rely on. A bankruptcy notice is issued by the Official Receiver on application by a creditor. A copy of a sealed (or certified) judgement or order of the court must be attached to the bankruptcy notice.
Other acts of bankruptcy, which are not as common include:
- An intent to delay or defeat creditors;
- Execution against the debtor;
- Signing an authority under Part X.
In order for a debtor to be considered to have an intent to delay or defeat creditors, a creditor would need to show that the debtor has carried out one of a number of potential acts including:
- Leaving or staying out of Australia;
- Departing from their residence or place of business;
- Being generally absent; or
- Staying in their residence and refuse to allow entry to process servers or others seeking to recover their debts.
Where an act of bankruptcy involves execution against the debtor, the creditor must show that the execution has been returned unsatisfied (the warrant of execution has been physically brought back to the court registry).
If a debtor attempts to come to an arrangement with creditors through a Part X personal insolvency agreement, they must sign an authority authorising a trustee or a solicitor to call a meeting of creditors. If the creditors do not accept the settlement proposal by the debtor, any of the creditors are entitled to present a petition.
If you are a creditor looking for advice regarding your entitlement to present a creditor’s petition, or if you are a debtor and require advice in respect of bankruptcy or alternative debtor arrangements, get in touch with out insolvency lawyers on 1300 544 755.