Is it Appropriate to Issue a Bankruptcy Notice?
Creditors who are owed debts often consider the possibility of issuing a Bankruptcy Notice against the debtor and, thereafter, instituting Bankruptcy proceedings against the debtor if the Bankruptcy Notice is not complied with.
Before such a course of action is taken, serious consideration needs to be given to the appropriateness of issuing a Bankruptcy Notice.
The Court has inherent jurisdiction to set aside a Bankruptcy Notice if the issuing of the Bankruptcy Notice is an abuse of process. Whilst the categories of circumstances in which the issuing of a Bankruptcy Notice will be regarded as an abuse of process are not closed, a number of general statements of principle can be made:
- It will be an abuse of process to issue a Bankruptcy Notice for the purpose of trying to put pressure on the debtor to pay the claimed debt.
- It will be an abuse of process to issue a Bankruptcy Notice with the view of the creditor trying to use it as a mechanism to collect the claimed debt.
- It is an abuse of process to issue a Bankruptcy Notice for the purpose of embarrassing the debtor, rather than with the intention of making the debtor bankrupt.
- It is more likely to be an abuse of process to issue a Bankruptcy Notice if the creditor knows that the debtor is solvent, is able to pay the debt but is simply refusing to pay.
- It is more likely to be appropriate to issue a Bankruptcy Notice if the creditor has formed a genuine belief that the debtor is insolvent, and intends to invoke the Court’s jurisdiction in relation to insolvency in these circumstances.
- A creditor doesn’t necessarily have to exhaust all other mechanisms for enforcing a debt before issuing a Bankruptcy Notice. That said, the fact of a creditor having not utilised any other mechanisms to recover the debt before issuing a Bankruptcy Notice may be one factor which suggests that the Bankruptcy Notice is an abuse of process.
- It is generally not an appropriate use of procedure to issue a Bankruptcy Notice in relation to disputed debts. This is because the debtor has a right, within twenty one (21) days of being served with a Bankruptcy Notice, to bring an application to the Court to set the Bankruptcy Notice aside on the basis that there is a genuine dispute about the claimed debt. The threshold for establishing a genuine dispute in relation to a claimed debt is not high.
- In this context, generally speaking, Bankruptcy Notices are normally issued in relation to debts for which a judgement has been obtained.
In an application to set a Bankruptcy Notice aside the Court will closely examine the circumstances in which it was issued (including any correspondence that was sent before the Bankruptcy Notice was issued), for the purpose of assessing whether the Bankruptcy Notice is an abuse of process.
Do you require assistance in deciding whether it is appropriate to issue a Bankruptcy Notice on a debtor? Please feel free to contact one of our Litigation Lawyer, Patrick Toscano to discuss your matter further.
Member of the RNG Lawyers Litigation team, Patrick Toscano.