Reading time: 4 minutes

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.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards