Psevdos v Commonwealth Bank of Australia (No 2)

The case of Psevdos v Commonwealth Bank of Australia (No 2) involved Mr Psevdos, who was subject to a sequestration order made by the Federal Circuit Court of Australia (FCC) on a creditor’s petition presented by the Commonwealth Bank of Australia (CBA). The primary issue before the court was whether the bankruptcy court had the authority to go behind the judgment to investigate whether there was a good debt to support it, particularly in light of Mr Psevdos' allegations of fraud. The court was required to decide if the FCC erred in its determination of the existence of the debt and whether it had sufficient cause not to make a sequestration order under section 52(2)(b) of the Bankruptcy Act 1966 (Cth).

The Federal Court of Australia, in its reasoning, referred to the principles established in Corney v Brien, which highlighted that while a judgment is prima facie evidence of a debt, it is not conclusive in bankruptcy cases. The court has the discretion to investigate whether there was a good debt to support the judgment. However, this discretion is not to be exercised lightly, particularly in cases where the judgment followed a full investigation at trial. The court must consider whether there is a prima facie case of fraud, collusion, or miscarriage of justice. The court also noted that the mere fact that a compromise may not have been in accordance with the true merits of the claims made is not sufficient to impugn the compromise.

In this case, the Federal Court found that the FCC did not err in its determination. The court held that Mr Psevdos' allegations of fraud and the circumstances surrounding the Supreme Court proceedings did not meet the threshold for the court to go behind the judgment. The court concluded that the FCC had sufficient cause not to make a sequestration order, as the judgment debt was valid and supported by the evidence presented. Therefore, the appeal was dismissed, and the sequestration order against Mr Psevdos was upheld.