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As a last resort, when debts to your business are unpaid, you may need to consider making a bankruptcy application. This application could be against the person or business that owes you money. This can be a time-consuming and resource-intensive process. You will first need to obtain a judgment against the debtor. Additionally, you must go through the stages of trying to have the debt paid. However, if the debtor is unable to pay their debts, you may have no better option than to make a bankruptcy application. This article explains:

  • what a bankruptcy application is; 
  • how to first obtain a judgment against the debtor; and 
  • the process of making a bankruptcy application in the High Court.

What is a Bankruptcy Application?

A bankruptcy application is the process of making a debtor (a person who owes you or your business money) bankrupt. In bankruptcy proceedings, you ask the High Court to declare that the debtor is insolvent and unable to pay their debts. If you are successful, the debtor’s property will be transferred to the custody of the Official Assignee and given to their creditors. After this happens, the debtor will not need to pay any remaining debts (except for court-ordered fines). It is a last resort process for debtors that genuinely do not have the resources to pay the debts they have accumulated. 

It is strongly recommended to get legal advice when making a bankruptcy application. 

If you want to apply to make someone bankrupt, then you need to have obtained a judgment in a court or tribunal against them for the amount of money they owe to you. This process is covered in the following section of this article. After obtaining a judgment, you are referred to in legal terms as the ‘judgment creditor’, and the person owing you money is referred to as the ‘judgment debtor’. To apply to make someone bankrupt, you must be a judgment creditor.

Obtaining a Judgment Against the Debtor 

Before going to court to seek legal enforcement of a debt, you should first make serious efforts with the person owing money to understand why they have not paid you or come to some kind of agreement about payment. However, if this is unsuccessful, you may have little choice but to ask a judge to enforce your legal claim. 

In New Zealand, this starts by obtaining a judgment against the person (the debtor). The right court to use for your lawsuit depends on the size of the debt. For claims:

  • $30,000 or less, you can commence proceedings in the Disputes Tribunal, which is quicker, cheaper and less formal than court (but can still make legally binding determinations);
  • $350,000 or less, you can go to the District Court; and
  • above $350,000, you will need to go to the High Court.

Once you file a claim in a tribunal or court above, you will need to serve the claim directly on the debtor. You can do this by post if the debtor is a company. If they are an individual, you will need to engage an agent to serve the documents on them directly. The debtor has the opportunity to prepare a defence to your claim. If they do, the parties will engage in litigation before the court makes a judgment. If they do not file a defence within the set time period, you will be able to obtain a default judgment. This makes you the default creditor and able to make a bankruptcy application.

The Process of Making a Bankruptcy Application

You must file the following documents to apply to make someone bankrupt:

The bankruptcy notice should tell the judgment debtor the amount of money that they owe you. It provides them with 10 working days (or longer if they live outside of New Zealand) to either: 

  • pay the debt; 
  • enter into a formal agreement with you about paying the debt; or 
  • make an argument to the High Court that they have a reasonable counterclaim against you that equals or exceeds the amount you are claiming from them. 

The judgment debtor has committed an act of bankruptcy if they do not complete any of these instructions within the timeframe after receiving the bankruptcy notice. If they have committed an act of bankruptcy and the debt is over $1000, you can make a creditor’s application for adjudication (a creditor’s petition). This application will ask the court to declare the judgment debtor bankrupt.

If the court does so, the debtor’s property will in most cases be transferred to the custody of the Official Assignee and given to their creditors.

Key Takeaways

If a debtor refuses or is unable to pay a debt to you or your business, you may need to take significant legal steps to enforce the debt. This starts with obtaining a legal judgment against the debtor. If the debtor ignores or is unable to comply with that legal judgment, you can make a bankruptcy application to have the debtor declared insolvent. This can be a complicated process and so getting legal advice is almost always a good idea. To know more about making a bankruptcy application, contact LegalVision’s disputes and litigation lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is a bankruptcy application?

A bankruptcy application seeks to have the judgment debtor declared insolvent. This means that the debtor is ‘bankrupt’, and their property is given to their creditors (the people the debtor owes money to). 

Can anyone apply to make someone else bankrupt?

No. Only a ‘judgment creditor’ – someone a court has said the debtor owes money to – can make a bankruptcy application against them. A court or tribunal must have already made a judgment against the debtor to legally enforce the debts they owe. Hence, making the creditor a ‘judgment creditor’. 

How long does a debtor have to respond to a bankruptcy notice?

A debtor has ten working days in most cases to respond to a bankruptcy notice, in which time they can pay the debt or make a counterclaim. 

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