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If you are thinking about starting court proceedings or you have been successful in court, it is important to consider how you are going to enforce the judgment. However, enforcing the judgment and receiving money from the debtor (i.e. the person that owes you money) can be difficult, especially if they are bankrupt. The situation can be more complicated if the judgment took place overseas or alternatively, if the judgment took place in Australia, but a foreign court must enforce it. This article sets out how bankruptcy in Australia affects the process of enforcing a judgment, whether in Australia or overseas. 

What is Bankruptcy?

Bankruptcy is a legal process in which a court declares that a person is unable to pay their debts. The process releases the bankrupt person from most of their debts and can be voluntary or involuntary. Bankruptcy will normally last for three years and one day.

During bankruptcy, a third party, known as a trustee, manages the bankruptcy process. The trustee looks after the bankrupt person’s financial affairs and is able to sell most of their assets in order to pay out creditors (i.e. a person that the bankrupt person owes money to).

Foreign Judgments

Australia’s foreign judgment laws provide that some foreign courts can enforce judgments of some Australian courts. This is due to reciprocal arrangements between certain countries. These countries include:

  • United Kingdom;
  • Canada;
  • Hong Kong;
  • Germany;
  • Korea;
  • Japan;
  • Italy; and
  • Switzerland.

These countries have enacted similar laws for the enforcement of Australian court judgments. New Zealand is not part of the regime, as New Zealand and Australia have a separate reciprocal arrangement.

In order to be able to enforce the judgement overseas, the Australian judgment must be:

  • for a sum of money; and
  • final and conclusive (i.e. not subject to any pending court orders).

Furthermore, the application to enforce the order must have been made within six years of the judgment.

How Does Bankruptcy Affect the Enforcement of a Judgment?

This issue of how bankruptcy affects the enforcement of an Australian judgment on an overseas debtor was discussed in a 2017 High Court case. This case illustrates the difficulties faced by creditors trying to enforce a judgment on a person who has been declared bankrupt in Australia. In this case, the court made a judgment against a person who held assets overseas (the debtor). However, when the other side tried to enforce the judgment, a court declared that the debtor was bankrupt in Australia.

The court found that if a person is bankrupt in Australia, a creditor cannot start legal action against them without the court’s permission. Furthermore, the court stated that the purpose of this specific law was to prevent someone from enforcing a judgment in a foreign legal system that would otherwise not be enforceable under Australian laws. In short, because the debt could not be enforced in Australia because of the bankruptcy, it could not be enforced overseas either.

What Does this Mean for Creditors?

In light of this case, it is clear that a creditor cannot use Australia’s foreign judgment laws to gain an advantage overseas that would otherwise not be permitted in Australia. A person wishing to enforce an Australian judgment overseas (or a foreign judgment within Australia) against a debtor who is bankrupt in Australia will need to wait until the debtor’s assets have been sold. The court will divide the proceeds of these assets among creditors.

However, bankruptcy generally only lasts for three years and one day. Therefore, a debtor may return to a financial status that enables a creditor to enforce a judgment against them. The limitation on enforcing court judgments in Australia is 12 years (or 15 years in Victoria and South Australia).

Key Takeaways

Enforcing an Australian or foreign judgment can be difficult when a debtor has been declared bankrupt in Australia. A creditor cannot rely on foreign judgment laws in Australia to enforce a judgment overseas that would not be possible in Australia. Bankruptcy therefore presents a real problem for creditors who are relying on court judgments. Their only option is to wait until their debtor’s assets have been sold, and see whether they receive any proceeds. For many creditors, this may mean they never receive the full value (or any) of the judgment. However, a judgment can be enforced in Australia within 12-15 years. Therefore, a creditor may still enforce a judgment if their debtor recovers from bankruptcy in this time. If you have any questions about how you can enforce a judgment debt in Australia or overseas, you can contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.

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