About Us

We work collaboratively with our clients to build strong, sustainable relationships. Our team is committed to delivering consistent high standards of service, and we understand the importance of accessibility. Working with us, you'll enjoy open communication, meaning well scoped, properly resourced and effectively managed matters.

Learn More

Latest Case

Providing strategic advice on expansion structures November 16, 2018

Founded in Bondi Beach in 2012, Bailey Nelson has rapidly grown into a global eyewear retailer and service provider with boutiques in Australia, London, Canada and New Zealand. The strong demand for their products and … Continued

Latest News

Winner of William Ah Ket Scholarship 2019 announced October 9, 2019

Wednesday 9 October 2019 A Victorian lawyer has been named this year’s winner of the William Ah Ket Scholarship. Tienyi Long, a legal and governance officer at Glen Eira City Council in Melbourne, was awarded … Continued

Latest Article

Final changes to the ASX Listing Rules announced October 15, 2019

On 10 October 2019 the Australian Securities Exchange (ASX) released its response to feedback received on its consultation paper ‘Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules’, together with the … Continued

High Court rules on extent Bankruptcy Court can ‘go behind’ a Judgment Debt – Implications for Petitioning Creditors

Key Points:

  • The discretion of the Bankruptcy Court to ‘go behind’ a judgment debt is not limited to only where there has been suggestion of fraud, collusion or a miscarriage of justice.
  • Merger of a prior existing debt into a judgment is not to relieve the need of the Bankruptcy Court to have satisfactory proof of the petitioning creditor’s debt. Therefore, the debt is not taken to be comprised in the judgment itself.
  • The High Court reaffirmed the important role of the Bankruptcy Court in the protection of third party rights in creditor petitions.

Yesterday, the High Court, in its decision of Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 rejected a narrow interpretation of the Bankruptcy’s Court discretion to ‘go behind’ a judgment and stated that the discretion is not strictly limited to circumstances of fraud, collusion or where there has been a miscarriage of justice.

In reaching its decision, the majority of the High Court held that even though fraud, collusion and miscarriage of justice are the most frequent examples enlivening the Bankruptcy Court’s jurisdiction to ‘go behind’ a judgment, the overarching obligations of s 52 of the Bankruptcy Act 1966 (Cth) involve the protection of the interests of third parties, particularly other creditors of the debtor (at [55]).

The decision is not reflective of a broadening of the discretion of the Bankruptcy Court to look behind a judgment debt. Rather, it is a reaffirmation of the unfettered discretion, not to be narrowly interpreted, of the Bankruptcy Court to determine whether the debt relied upon by the petitioner creditor is truly owing.

This decision should not be taken to suggest that the Bankruptcy Court will examine every judgment debt, absent the establishment of special circumstances. However, the High Court indicated that consent judgments and default judgments, not having had the claim tested in an adversarial litigation, will not have a practical guarantee of reliability (at [68]). In these situations, the potential disadvantage to third parties will be a vital consideration to the Bankruptcy Court.

Effect for petitioning creditors

In situations where a judgment debt has been obtained after the merits have been tested in adversarial litigation, petitioning creditors can find some comfort in that the Bankruptcy Court may never need to investigate whether the debt is truly owing. This decision does not broaden the Bankruptcy Court’s discretion or provide a new approach to petitioning creditor claims. Rather, this decision is a summation of the High Court’s refusal to limit the Bankruptcy Court’s discretion in situations where further investigation is needed into whether the debt is truly owing, with a particular emphasis on the debts where there is an increased potential disadvantage to third parties.

Author
Jessica Allen | Lawyer
T +61 3 9258 3760
E jessica.allen@maddocks.com.au

Key Points:

  • The discretion of the Bankruptcy Court to ‘go behind’ a judgment debt is not limited to only where there has been suggestion of fraud, collusion or a miscarriage of justice.
  • Merger of a prior existing debt into a judgment is not to relieve the need of the Bankruptcy Court to have satisfactory proof of the petitioning creditor’s debt. Therefore, the debt is not taken to be comprised in the judgment itself.
  • The High Court reaffirmed the important role of the Bankruptcy Court in the protection of third party rights in creditor petitions.

Yesterday, the High Court, in its decision of Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 rejected a narrow interpretation of the Bankruptcy’s Court discretion to ‘go behind’ a judgment and stated that the discretion is not strictly limited to circumstances of fraud, collusion or where there has been a miscarriage of justice.

In reaching its decision, the majority of the High Court held that even though fraud, collusion and miscarriage of justice are the most frequent examples enlivening the Bankruptcy Court’s jurisdiction to ‘go behind’ a judgment, the overarching obligations of s 52 of the Bankruptcy Act 1966 (Cth) involve the protection of the interests of third parties, particularly other creditors of the debtor (at [55]).

The decision is not reflective of a broadening of the discretion of the Bankruptcy Court to look behind a judgment debt. Rather, it is a reaffirmation of the unfettered discretion, not to be narrowly interpreted, of the Bankruptcy Court to determine whether the debt relied upon by the petitioner creditor is truly owing.

This decision should not be taken to suggest that the Bankruptcy Court will examine every judgment debt, absent the establishment of special circumstances. However, the High Court indicated that consent judgments and default judgments, not having had the claim tested in an adversarial litigation, will not have a practical guarantee of reliability (at [68]). In these situations, the potential disadvantage to third parties will be a vital consideration to the Bankruptcy Court.

Effect for petitioning creditors

In situations where a judgment debt has been obtained after the merits have been tested in adversarial litigation, petitioning creditors can find some comfort in that the Bankruptcy Court may never need to investigate whether the debt is truly owing. This decision does not broaden the Bankruptcy Court’s discretion or provide a new approach to petitioning creditor claims. Rather, this decision is a summation of the High Court’s refusal to limit the Bankruptcy Court’s discretion in situations where further investigation is needed into whether the debt is truly owing, with a particular emphasis on the debts where there is an increased potential disadvantage to third parties.

Author
Jessica Allen | Lawyer
T +61 3 9258 3760
E jessica.allen@maddocks.com.au