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Bankruptcy Won’t Help a Fraudster | Barodawala v Perinparajah 2022

Bankruptcy Won’t Help a Fraudster

Key Takeaway

The end of bankruptcy does not release debts incurred by fraud.

The recent Victorian Court of Appeal decision in Barodawala v Perinparajah [2022] VSCA 198 is a reminder that section 253(2)(b) of the Bankruptcy Act 1966 (Cth) carves out an exception to the general rule that the end of bankruptcy means the release of all of the bankrupt’s debts.

Section 253(2)(b) provides that:

“The discharge of a bankrupt from bankruptcy does not release the bankrupt from a debt incurred by means of fraud or fraudulent breach of trust to which he or she was a party or a debt which he or she had obtained forbearance by fraud.”

This exception provides that debts incurred by fraud are still enforceable following a bankrupt being discharged from their bankruptcy – subject to compliance with limitation periods.

However, while the decision in Barodawala v Perinparajah discussed this exception, the appellant’s reliance on section 253(2)(b) ultimately failed because a finding was made that the debt was not incurred by actual fraud.

The decision also commented on the purpose of section 253 and its exceptions, and found that the general purpose is to protect the honest but unfortunate debtor who has fallen on hard times, but not to permit dishonest debtors escaping their obligations. Further, ordinary creditors may be required to forgo full payment of their debts; however, creditors who have been the subject of fraud are given a greater degree of protection by reason of section 253(2)(b).

The decision also affirmed that section 253(2)(b) was applicable to debts incurred by fraud whether or not a judgement had been handed down in relation to the debt, overturning Power v Kenny [1977] WAR 87.

While this decision ultimately found that the appellant’s debt did not fall within this provision of the Bankruptcy Act, it is a reminder of an often-overlooked exception to the layperson’s understanding that a bankrupt gets a clean slate following bankruptcy.

Fraud will not be forgotten.

If you or anyone you know needs assistance recovering a debt or navigating personal or corporate insolvency issues, please feel free to contact Bell Legal’s own insolvency lawyer, Tim Elliott.

Please note the topics discussed in this post are general in nature. None of the comments made constitute legal advice and nor should they be taken as such. If you have a legal query and would like advice or assistance, please get in touch.