What is a Creditor’s Petition?

A Creditor’s Petition is the document by which bankruptcy proceedings are commenced in the Federal Circuit Court (“Court”). The term “creditor’s petition” is sometimes also used as a generic term to describe bankruptcy proceedings.

The creditor that prepares, files and serves a creditor’s petition is referred to as the “petitioning creditor”. The person receiving a creditor’s petition is referred to as the debtor. Other creditors might also join in bankruptcy proceedings and are known as “supporting creditors”. The practical significance of a creditor’s petition to a person will depend on whether that person is the creditor, debtor or a supporting creditor.

Creditor

A creditor may prepare, file and serve a creditor’s petition in order to commence bankruptcy action against a debtor. This is referred to as “presenting” a petition. To present a creditor’s petition:-

1. There must have been an “act of bankruptcy” committed by the debtor. By far the most common act of bankruptcy upon which creditor’s petitions are founded is non-compliance with a Bankruptcy Notice.

2. That act of bankruptcy must have been committed within six months prior to presenting the petition.

3. The debtor must owe the creditor at least $5,000.00.

4. All formal requirements as set out in the Bankruptcy Act and all relevant regulations under that Act or of the Court must be complied with. This includes preparing the correct petition document and all necessary supporting affidavits.

5. All documents must then be filed with the Court and the appropriate filing fee be paid.

Once presented the petition and supporting affidavits must be served on the debtor.

By presenting a petition the creditor is commencing legal proceedings. The creditor is committed to those proceedings until the proceedings are either heard and decided on by the Court or settled with the debtor (commonly by payment of the debt claimed, or an agreed settlement of the debt).

Debtor

The first that a debtor usually knows of a creditor’s petition is when the petition and supporting affidavits are personally served on the debtor. The petition will set out the date of the first listing of the proceedings at Court. It is essential that the debtor attends (personally or by a solicitor) the Court on that day. If the debtor does not appear then the creditor might proceed to finalise the bankruptcy proceedings on that day.

Upon being served with a petition a debtor should immediately seek legal advice as to defences and other courses of action available.

Supporting Creditor

A creditor who wishes to present a petition against a particular debtor might conduct the necessary searches and discover that another creditor has already presented a petition against that debtor. In that circumstance that creditor does not need to present a fresh, separate petition. Rather, that creditor, now known as a “supporting creditor” (as opposed to a “petitioning creditor”) can appear in the proceedings that are already on foot and “support” the petitioning creditor’s proceedings.

This support may be in the form of making further submissions/arguments to the Court as to why the debtor should be made bankrupt. Alternatively, if the debtor pays out or otherwise settles with the petitioning creditor the supporting credit can then step into the petitioning creditor’s shoes and take over the proceedings, in a process known as “substitution”.

If you are owed money and would like to know your options for recovery then get in touch with one of our debt recovery lawyers at your local Prime Lawyers office.

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