Creditor’s Petition

What is a creditor’s petition?

A creditor’s petition is often used as a generic term to describe bankruptcy proceedings, but in actual fact, it’s the document by which bankruptcy proceedings are commenced in the Federal Circuit Court.

This means that a creditor can file a creditor’s petition with the court if there has been a failure by a debtor to satisfy a Bankruptcy Notice within the prescribed 21-day period. The creditor can then turn to the courts to make an order for sequestration – taking legal possession of their assets which makes them bankrupt.

Creditor's petition

How and when to file a creditor’s petition

A creditor’s petition can be served against just about anyone – individuals, joint debtors, and partners in a partnership.

To file a creditor’s petition, there are four key requirements that must be satisfied:

  • the debt must be over the value of $5,000.
  • The debt or debts must be for a specified sum of money
  • the debt or debts must be payable either immediately or at a certain future time
  • the ‘act of bankruptcy’ on which the creditor’s petition is based must have been committed within 6 months before the filing of the creditor’s petition. This time period is important and shows that a debtor is insolvent.

Filing a creditor’s petition is as simple as making an application to the court to make a sequestration order against the debtor and appoint a Trustee to manage their affairs. This needs to be supported by several affidavits – such as an affidavit verifying the debt, and affidavit of search, and an affidavit of service of the bankruptcy notice – to prove that the correct steps have been taken to allow the court to make such an order.

If the Court declares the debtor bankrupt, the creditor who obtained the order must give a copy of it to The Australian Financial Security Authority (AFSA) who are responsible for the administration and regulation of bankruptcy in Australia.

The application fees involved in this are outlined below and are recoverable in priority to other creditors, subject to any monies being available once the sequestration has occurred:

  • $965 for a corporate applicant; and
  • $390 for a personal applicant.

A creditor’s petition will expire 12 months after it has been lodged with the court, however, extensions of time can be given by the court.

Bankruptcy proceedings

Receiving and responding to a creditor’s petition

A copy of the creditor’s petition and the affidavits will be given to the debtor at least 5 days before the hearing date, in order for a sequestration order to be made. If the debtor is given less than 5 days, they can ask the Court for a new hearing date.

If you are served with a creditor’s petition, there are four typical responses that are made:

  1. Agree to a sequestration order being made – you will be made bankrupt and your assets be managed by a Trustee.
  2. Negotiate to pay the debt or negotiating payment by instalments with the creditor. This must be agreed with the Creditor and Court, in which case, the Court case will be adjourned.
  3. Paying the debt off in full – you will likely need to also pay the creditor’s legal costs.
  4. Challenge the creditor’s petition. This should only be done if there is are exceptional circumstances and clear evidence that can support your case in Court.

Can a creditor’s petition be challenged?

There are a number of ways to contest, challenge or oppose a creditor’s petition to prevent bankruptcy from occurring, with some of the most common examples being:

  • The debtor did not receive the bankruptcy notice correctly, non-service.
  • The bankruptcy notice or creditors petition, or supporting affidavits suffer from a substantial defect or non-compliance with the rules.
  • The debtor received the bankruptcy notice and paid it.
  • The debtor received the bankruptcy notice and agreed a repayment arrangement.
  • The debtor is challenging the underlying judgment debt and has taken steps to dispute it.
  • The debtor can pay all of their debts when payable and is therefore solvent.
  • The debtor has some other exceptional circumstances why the sequestration order ought not be made against them.

More information

If you are owed money and would like to know your options for recovery, or if you have been served with a creditor’s petition, get in touch with one of experienced lawyers to assist you with your individual circumstances. Because of the serious consequences of being declared a bankrupt, the courts take a very hard-line approach to getting every document involved in the process correct. Our team can help make sure this process – whether you’re issuing a creditor’s petition or opposing one – is as seamless as possible.