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As a business that loans money to customers or fellow businesses, there may be situations where this debtor (the customer or business) does not repay you. You may plan to take legal action against by starting bankruptcy proceedings against a debtor in these circumstances. This article will outline:

  • when you can apply to declare, or adjudicate, a debtor bankrupt; 
  • the application process; and
  • what occurs once you have filed this application.

When Can You File an Application to Declare a Debtor Bankrupt?

You may apply to declare, or adjudicate, a debtor bankrupt if the:

  • debtor owes you at least $1,000. If this is a case, you are an unsecured creditor to the debtor. If you are a secured creditor, you must follow a slightly different process;
  • debtor has committed an act of bankruptcy before or after they incurred this debt and within three months before you have filed the application; and
  • debt is a certain, or fixed, amount that is meant to be paid either immediately or at a fixed date in the future. 

The Acts of Bankruptcy

In New Zealand, there are 12 acts of bankruptcy. You may file an application to adjudicate the debtor bankrupt if three aspects above are satisfied and the debtor commits one of the following acts:

  • fails to comply with a bankruptcy notice;
  • disposes of property to a trustee for your benefit, or the benefit of another creditor; 
  • fraudulently, or with intent, disposes of their property to give you or a fellow creditor an advantage over other creditors; 
  • departs from New Zealand, in an attempt to defeat or delay you or other creditors from seeking repayment; 
  • avoids you or other creditors;
  • notifies you or other creditors that they have suspended debt repayments; 
  • admits at a meeting with you or other creditors that they are insolvent; 
  • gets issued an execution process;
  • has a writ of sale directed against their land;
  • cannot produce sufficient goods when under an execution process; 
  • removes, conceals or attempts to remove or conceal property from you or other creditors; or 
  • cannot satisfy a judgment for non-payment of trust money within five working days of the judgment’s date. 

The Application

There are three key requirements you must abide by when drafting and filing your application to declare a debtor bankrupt. This application is also referred to as an originating application.

Procedure

You must draft an originating application in the prescribed format of an application. The High Court Rules outline this form. In conjunction with an originating application, you must also draft an affidavit and a summons to the debtor. If you intend to claim costs from these proceedings, you must specify the amount of costs you are claiming in the summons document.

These documents should notify the debtor that they must appear in court for bankruptcy, and notify both the court and the debtor why the debtor should be declared bankrupt. 

Verification

Your application must be verified. This verification can occur by affidavit, or by an individual who knows the facts of your scenario. If you are going to verify your application by affidavit, you must file the affidavit in the High Court and in the form specified in the High Court Rules. This verification process is intended to ensure that only valid or supported bankruptcy cases can progress to court.

Bankruptcy, or engaging in bankruptcy, can be incredibly serious and life-altering for debtors, and should only occur where there is sufficient evidence. 

Place of Filing

You must file this application in a registry of the High Court. The registry where you file this application should be the location nearest to where the debtor lives or conducts their business.

What Happens Next?

Once you have filed your application with the High Court, both you and the debtor will receive a date and time for your hearing. From this point, you cannot issue an execution process against the debtors to recover any debt on which your application is based on. However, you will be able to do so if you have the High Court’s permission.

After the hearing and considering your application as to why the debtor should be declared as bankrupt, the court can take four courses of action. The court can:

  • issue a bankruptcy order and adjudicate the debtor bankrupt;
  • refuse to adjudicate the debtor bankrupt;
  • halt your application; or
  • replace your application with that of another creditor who is owed more than $1,000 from the debtor. The court may do this if it believes that you have not proceeded with due diligence, or have not offered proper evidence at the hearing. 

Key Takeaways

When your business loans money to an individual or business, there is the possibility that this debtor cannot repay you. In such circumstances, you may wish to file an application to adjudicate this debtor bankrupt. However, to file such an application:

  • the debtor must owe you at least $1,000;
  • the debtor must have committed an act of bankruptcy; and 
  • this debt must have been for a fixed amount that was to be paid at a certain time.

If you meet this criterion, you must ensure that you have enough evidence and a well-drafted application to succeed in bankruptcy proceedings. If you need assistance with starting bankruptcy proceedings against a debtor or require legal advice, contact LegalVision’s New Zealand disputes lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is a creditor in a bankruptcy?

A creditor is an individual that the debtor, or the individual in the bankruptcy proceedings, owes money to.

When can you file an application to adjudicate a debtor bankrupt?

You can file a bankruptcy application if the debtor owes you at least $1,000, the debtor has committed an act of bankruptcy and this debt is for a fixed amount that was to be paid at a certain time.

What should a bankruptcy application include?

A bankruptcy application, along with an affidavit and a summons to the debtor, should notify the debtor that they must appear in court for bankruptcy proceedings, and notify both the court and the debtor why the debtor should be declared bankrupt.

Where do you file a bankruptcy application?

You should file the bankruptcy application in the High Court nearest to the debtor’s address or place of work.

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