Debt Recovery & Litigation


Section 40 of the Bankruptcy Act 1966 sets out a number of different ways in which a person may commit an act of Bankruptcy. Only after an act of bankruptcy can a creditor petition the court for a sequestration order.

The most common way for a creditor to trigger an act of bankruptcy is to serve a Bankruptcy Notice issued by the Australian Financial Security Authority, formerly the Insolvency & Trustee Service Australia. Before a Bankruptcy Notice can be issued the creditor needs to have obtained a final judgment or order for the payment of a debt in excess of $5,000.00.

The debtor has 21 days from the date of service of the Bankruptcy Notice in which to comply with the Bankruptcy Notice. Compliance is by way of payment or satisfaction of the Court that the debtor has a set off or cross claim equal to or exceeding judgment debt. Failure to comply with the Bankruptcy Notice in this manner is an act of Bankruptcy pursuant to section 40(g).

Once an act of Bankruptcy has been committed a creditor may commence proceedings by filing a Creditor's Petition in the Federal Court of Australia. The petition is the formal application to the Court for a sequestration order to be made against the estate of the debtor. If a sequestration order is made the debtor's property, including certain pre-bankruptcy and post-bankruptcy property vests in the name of the the registered trustee. This is what is more generally known as being a bankrupt.

Because bankruptcy has an ongoing consequence to the debtor's property and earnings (during the term of the bankruptcy), credit rating and associated stigma Bankruptcy has become an effective tool for creditors to finalise recovery action against debtors. 

In order to obtain the sequestration order there are a number of legislative requirements as set out in the Bankruptcy Act and relevant Court rules which must be addressed before the Court will grant the order. 

Prime's Bankruptcy Lawyers Sydney & NSW have practised in the Bankruptcy Courts for a number of years. We are aware of practice and procedure and have the experience to advise you whether Bankruptcy is an appropriate avenue to collect your debt. 

If you are owed money and would like to speak with one of our debt recovery lawyers then get in touch with your nearest Prime Lawyers office.   

Call us to speak with one of our Bankruptcy Lawyers Sydney, Parramatta, Chatswood, Sutherland or Wollongong.  

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