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A second bite of the apple for judgment debtors

It has long been held that a Bankruptcy Court has ‘undoubted jurisdiction’ to go behind a judgment and question whether a debt exists. Yet it is commonly thought that the Court will only exercise such discretion in circumstances of fraud, collusion or where there has been a serious miscarriage of justice.

However the High Court of Australia (HCA) in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 has recently confirmed the position that a Bankruptcy Court can, and should, be willing to ‘go behind’ a judgment and question whether a debt is really owed where a ‘genuine dispute’ exists between a creditor and debtor. 

This decision is a warning to creditors seeking to enforce a judgment that a debtor may now use the opportunity in a bankruptcy proceeding to take a ‘second bite of the apple’ and re-litigate the existence of a debt.  

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