Proof of Debts: Going Behind Court Judgments

Last reviewed and updated: May 2026

When can a liquidator (or trustee in bankruptcy) reject a proof of debt — including one supported by a court judgment?

In dealing with distressed companies and estates, liquidators and trustees face competing claims and a limited pool of assets. Often, many creditors — particularly unsecured creditors — recover nothing or only a fraction of what they are owed. Liquidators and trustees are therefore required to scrutinise every claim carefully to ensure only legitimately provable debts share in any dividend.

The power to “go behind” a court judgment — to look past the judgment itself and examine whether the underlying debt is genuinely owed — is one of the most powerful tools available to a liquidator or trustee. It is also one of the most misunderstood.

What Is a Proof of Debt?

A proof of debt is the formal mechanism by which a creditor lodges their claim in a liquidation or bankruptcy. It is a written statement, supported by documents, that sets out:

• The nature of the debt (trade debt, loan, damages, judgment, etc.)
• The amount claimed
• The basis on which the debt arose
• Supporting documentation (invoices, contracts, correspondence, court orders)

In a liquidation, proofs of debt are governed by the Corporations Act 2001 (Cth) and the Insolvency Practice Rules (Corporations) 2016. In a bankruptcy, they are governed by the Bankruptcy Act 1966 (Cth) and the Bankruptcy Regulations 2021 (Cth).

Once lodged, the liquidator or trustee must examine the proof and the grounds of the debt. They may:

1. Admit the proof of debt in full;
2. Admit it in part and reject it in part;
3. Reject it in whole; or
4. Require further evidence before making a determination.

The Courts have consistently recognised that a liquidator or trustee acting in this capacity acts in a quasi-judicial capacity — they must act fairly, consider all evidence, and give the creditor an opportunity to be heard before rejecting a claim.

The Liquidator’s Power to Go Behind a Judgment: The Re Van Laun Principle

What makes the proof of debt process unusual is that a liquidator or trustee is not bound by a court judgment in the way a private party would be. This is the principle established in Re Van Laun; Ex parte Chatterton [1907] 2 KB 23, confirmed and applied extensively in Australian courts.

The principle is this: a liquidator (or trustee) has the power and the duty to go behind a judgment — to look behind the face of the court order and examine the underlying transaction — where there is reason to believe that the judgment does not represent a genuine debt. The fact that a creditor holds a court judgment does not, by itself, guarantee admission of the proof of debt.

This power exists because judgments can be obtained by:

• Default (without any real contest of the underlying claim)
• Consent, including consent obtained under financial pressure
• Fraud or collusion between the debtor and a related party
• Error — where the underlying transaction was void or voidable
• Agreements between related parties to create the appearance of a debt

In each of these situations, the court judgment is a procedural outcome — it does not necessarily mean the debt was genuinely owed. The liquidator or trustee’s duty is to the general body of creditors, not to any individual creditor. They must protect the estate from fraudulent or inflated claims.

When and Why Do Liquidators Challenge Judgments?

Liquidators most commonly exercise the power to go behind a judgment where:

• The judgment creditor is a related party of the company or director (family members, associated entities, director-controlled creditors)
• The judgment was obtained by default without any real dispute
• The underlying transaction appears uncommercial or suspicious (e.g., a loan with no documentation, an inflated services invoice)
• The judgment was obtained very close to the date of the winding-up order (suggesting an attempt to create priority)
• There is reason to believe the judgment arose from a fraudulent preference or sham transaction

The liquidator does not need to prove the debt is false — merely that there are reasonable grounds to look behind it. Once they exercise this power, the onus shifts to the creditor to prove the underlying debt with documentary evidence.

What Creditors Must Do to Prove Their Debt

If a liquidator exercises the power to go behind your judgment, you will need to produce evidence of the underlying transaction. This typically means:

• The original agreement, contract, or loan documentation
• Board minutes, director resolutions, or other corporate records authorising the transaction
• Evidence of actual money changing hands (bank statements, transfer records)
• Invoices, purchase orders, or delivery receipts for goods and services
• Correspondence evidencing the debt at arm’s length

If you cannot produce adequate documentation, the liquidator may reject the proof, and you will receive no dividend. The court judgment, on its own, will not suffice.

Deadline for Lodging a Proof of Debt

In a liquidation, there is no universal statutory deadline for lodging proofs of debt. However, in practice, the liquidator will set a bar date — a date by which creditors must lodge their proofs to be included in any dividend distribution. If you miss the bar date, you may still be able to lodge a late proof, but this is at the liquidator’s discretion and may affect your entitlement to earlier dividends already declared.

In a bankruptcy, the Official Trustee or registered trustee similarly sets a deadline. It is critical to respond promptly to any correspondence from the liquidator or trustee — delay can cost you your dividend.

Disputed Proofs and Appeals to Court

If a liquidator rejects your proof of debt (in whole or in part), you have the right to appeal to the court. In a liquidation, this is typically an application to the Federal Court under the Corporations Act. In a bankruptcy, it is an application to the Federal Circuit and Family Court or Federal Court under the Bankruptcy Act.

On appeal, the court conducts its own examination of the underlying debt. The creditor bears the onus of proving the debt to the court’s satisfaction. The court can:

• Allow the proof in full
• Vary the amount admitted
• Dismiss the appeal and confirm the rejection

Appeals to court are costly and uncertain. In many cases, the value of the dividend at stake does not justify the litigation cost. A realistic assessment of your prospects — including the strength of your documentary evidence — is essential before pursuing an appeal.

Priority of Proofs in Liquidation

Even where a proof is admitted, the order in which creditors are paid in a liquidation is fixed by statute. Under section 556 of the Corporations Act, the priority is broadly:

1. Costs of the winding up (liquidator’s remuneration and expenses)
2. Employee entitlements (wages, superannuation, leave) up to statutory caps
3. Unsecured creditors (all rank equally and share pari passu in what remains)

Secured creditors stand outside this waterfall — they enforce their security separately and prove for any shortfall as unsecured creditors. In many liquidations, unsecured creditors receive nothing once the liquidator’s costs and employee entitlements are paid.

Frequently Asked Questions

If I have a court judgment, can the liquidator still reject my proof of debt?

Yes. Under the Re Van Laun principle, a liquidator has the power and duty to go behind a court judgment where there are reasonable grounds to believe it does not represent a genuine underlying debt. A default judgment, consent judgment, or related-party judgment is particularly vulnerable to this scrutiny. To protect your position, ensure you have thorough documentation of the underlying transaction.

Can I lodge a proof of debt if I don’t have written documentation of the debt?

You can try, but your chances of success are low. Liquidators and trustees are rightly sceptical of undocumented claims — particularly from related parties. If you are owed money but lack documentation, gather whatever evidence you have (correspondence, bank records, text messages) and seek legal advice before lodging your proof. The better your evidence, the better your prospects.

What happens if the liquidator admits my proof but there is no money left to pay creditors?

You receive nothing in that liquidation. Admission of a proof of debt establishes your entitlement to receive a dividend, but it does not guarantee payment. If the assets are insufficient to fund a dividend after the liquidator’s costs, you will receive a nil dividend. You are then left with an admitted but unsatisfied debt — which may have some value if the company or its directors are later pursued for other recoveries.

Are there time limits on when a liquidator can go behind a judgment?

There is no specific statutory time limit on the liquidator’s power to investigate and go behind a judgment. The power exists for the duration of the liquidation. In practice, liquidators exercise this power most actively in the early stages of the administration, when proofs are first lodged and the estate is being investigated. However, if new information comes to light later, the liquidator can revisit an admitted proof.

How Boss Lawyers Can Help

Whether you are a creditor seeking to prove your debt in a liquidation or bankruptcy, or a liquidator needing to investigate suspicious claims, navigating the proof of debt process requires precision and experience. We regularly act for creditors, liquidators, and related parties in contested proof of debt proceedings in the Federal Court and Federal Circuit and Family Court of Australia.

Contact Mark Harley at Boss Lawyers on 1300 267 711 or visit bosslawyers.com.au.

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This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.

For expert legal advice on commercial disputes in Brisbane and Queensland, speak with our commercial litigation lawyers Brisbane. Call 1300 267 711 or contact us online.