If you obtain a judgment debt through a New South Wales Court, you have several enforcement options available to you. Depending on the judgment debt amount, you could recover the debt by issuing writs for the seizure of goods or registering a writ over the debtor’s property title.
In our experience, however, commencing bankruptcy proceedings against an individual is the most effective way to enforce a debt in NSW. We will outline the two stages involved in bankruptcy proceedings. Stage two involves commencing proceedings for a ‘sequestration order’ in either the Federal Court of Australia or the Federal Magistrates Court of Australia.
Importantly, you will need to understand the terms used in this article, namely what is a creditor and a debtor. A creditor is someone (natural person or company) who is owed money and a debtor is someone who owes money.
Step One: Bankruptcy Notice
A bankruptcy notice is a formal notice requiring the debtor to pay the outstanding amount within 21 days from receiving the notice. The Official Receiver (via Australian Financial Security Authority) issues the bankruptcy notice based on a final judgment or order for a minimum amount of $5,000.
To succeed on a bankruptcy notice, a creditor must show that the debtor committed an ‘act of bankruptcy’ as set out in Section 40 of the Bankruptcy Act 1966 (Cth). Commonly, an act of bankruptcy is failing to comply with a bankruptcy notice.
A debtor has 21 days from receiving a bankruptcy notice to respond by either,
- repaying the debt, or
- offering the creditor a payment proposal.
If the debtor fails to respond to the notice within 21 days or apply to set the notice aside, the creditor can file a creditor’s petition to have the debtor declared bankrupt.
Step Two: File Proceedings in Court
If the bankruptcy matter moves to Court, the creditor can elect to file proceedings in either the Federal Magistrates Court or Federal Court.
There is no requirement for the parties to attend the Court and give oral evidence. A creditor instead needs to file and serve on the debtor a bundle of documents, including a creditor’s petition. The creditor bears the costs for filing a creditor’s petition.
Before lodging an application, the creditor should search the National Personal Insolvency Index (NPII) to determine whether or not the debtor is already bankrupt.
A debtor can sometimes persuade the Court to adjourn the matter to allow them to repay the debts, and avoid declaring bankruptcy. However, the Court will not allow the matter to drag on indefinitely and aims to apply maximum pressure to the debtor to pay the debt.
The Court will issue a sequestration order once satisfied that the debtor cannot pay their debts and has committed an act of bankruptcy.
What happens once someone is declared bankrupt?
When the Court makes an order, the bankrupt property falls under the control of a private trustee or the Official Trustee. The creditor can nominate a private trustee who in turn must consent to act. The trustee’s role is to manage the debtor’s financial affairs and realise the debtor’s assets to repay (where possible) the debtor’s creditors.
If you have successfully obtained a sequestration order against the debtor, you will be able to provide a schedule setting our your claim for legal costs and disbursements. The Schedule may cover reasonable expenses for searches, the bankruptcy notice fee, filing fees and service of documents.
LegalVision has experienced litigation and dispute resolution lawyers who can provide advice on debt recovery. If you have any questions about recovering a debt in NSW, please get in touch with us on 1300 544 755.