In a perfect world, you would not ever need to file a creditor’s petition when owed a significant outstanding debt. Alas, we don’t live in a dream landscape of win-win deals and payments delivered before they’re due. This step in the recovery process is severe and will not only return owed funds to you but bankrupt your debtor.
What exactly is this petition and, what are the requirements before you can submit it to the Court?
What is a creditor’s petition?
A creditor’s petition is where you ask the Court to rule that a debtor’s assets are sequestrated (essentially seized and sold), and they will then become bankrupt.
The petition has a stringent set of conditions that need to be fulfilled before the Court will even consider it. Not only does the debtor have to owe you at least $5,000, but also the debtor has to have committed an ‘act of bankruptcy’ (as defined by the Australian Bankruptcy Act of 1966) in the last six months.
This could be:
● Failure to comply with a previous bankruptcy notice. After all, if they are already facing other financial issues and have been issued a notice before.
● The debtor has made plans to leave Australia or is absent from communication in the way of avoiding their debt.
● Has already signed a debt agreement to avoid going bankrupt (a payment plan with someone else).
● Already has assets (such as their home) placed in trusteeship to service existing debt. Also includes an Interim Control Order (see below)
Note that this is an ‘act’ of bankruptcy, not that they need to be bankrupt. If someone owes you a significant debt and is avoiding payment, and you have won the legal right to the money, that is an ‘act of bankruptcy’.
Before committing to a creditor’s petition, make sure that the debtor is not already insolvent or undergoing an existing proceeding. If they are, it may affect whether or not you can file the petition. You can find this out by going to the National Personal Insolvency Index (NPII) and performing a Bankruptcy Register Search. You will need to do this before your day in Court.
How to file a creditor’s petition
If the above conditions are met, then you can file the creditor’s petition.
First, you will need to make sure that you have all the documents in order. This will include:
● Evidence of the debt and initial communication
● The original judgment on your behalf (no more than six years old).
● Evidence of unsatisfied execution of a warrant (that the court order was unable to receive the funds on your behalf).
● Evidence of the act of bankruptcy
● Evidence of delivery of all the above warrants, judgments and other items to the debtor, plus
● A myriad of other documents supporting your claim and proof of your identity.
The petition is then filed in the federal court of Australia and will take up to 12 months to be heard.
We recommend that anyone in this position reads the following (and very helpful) checklist from the Australian Government.
https://www.fedcourt.gov.au/law-and-practice/guides/guides-bankruptcy/information-sheet-2
How do I stop a debtor taking action before they are sequestrated?
Once you have filed a creditor’s petition, you can also file what is known as an Interim Control Order. This is where the court orders the debtor’s assets to be placed under the control of a trustee and thus cannot be sold off before you are compensated.
To apply for one, the conditions below need to be met.
● You have a bankruptcy notice or have filed a creditor’s petition
● There is a risk that the debtor will offload the assets before the creditor’s petition is heard in court
● The debtor is still solvent, trading or is not yet bankrupt.
With these tools and knowledge, you can be confident that this final step will give you the result that you deserve. A creditor’s petition is a potent last step to recover debt, but it will disrupt the other individual beyond repair, so do not take this action lightly.
For assistance in filing a Creditor’s Petition or to learn more about your debt recovery options, contact us.
