What Do I Need to Prove to Get The Court To Adjudicate a Person Bankrupt?

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If an individual (as opposed to a company) owes you money and all your previous efforts to recover that money have failed, you may wish to proceed to Court to have that person adjudicated bankrupt.

Section 36 of the Insolvency Act 2006 provides that the Court, may, at its discretion, adjudicate a debtor bankrupt if the creditor has established the requirements set out in s 13. These requirements are:

  1. That the debtor owes the creditor $1,000 or more;
  2. The debtor has committed an act of bankruptcy within a period of three months before filing the application.
  3. The debt is a certain amount; and
  4. The debt is payable either immediately or at a date in the future that is certain.

What is an act of Bankruptcy? 
An act of bankruptcy is committed if a creditor has obtained a final judgment or order against the debtor, execution of that judgment or order has not been halted, the debtor has been served with a a bankruptcy notice, and the debtor has not within 10 working days (in the case of a debtor served in New Zealand) either complied with the notice or satisfied the Court that he or she has a cross claim against the creditor.

What can go wrong?
The Court has a jurisdiction to make an adjudication order if the criteria above have been met.  However, they also have discretion to refuse to adjudicate a debtor bankrupt if:

  • the creditor has not established the requirements listed above; or
  • if the debtor is able to pay his or her debts; or
  • if it is just and equitable that an order is not made; or
  • for any other reason the Court finds that an order should not be made.

Similarly, the Court can exercise its discretion not to make an adjudication order if the validity of the underlying judgment relied on is questioned.  If it is sufficiently clear to the Bankruptcy Court that there is a sound reason to believe that there is a flaw in the underlying judgment, the Bankruptcy Court could respond to it by giving time for reassessment of the judgment elsewhere, dismiss the application or to exercise its discretion not to make an adjudication order.

A statutory demand isIf you have been served with bankruptcy proceedings or you are looking to commence bankruptcy proceedings, please call to discuss the process. For advice on how to manage your legal issue, contact debt collection law specialist, Wendy Alexander by phone on 09 837 6844 or email wendy.alexander@smithpartners.co.nz