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When does a judgment debt arising out of fraudulent misrepresentation survive a bankruptcy?

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The Court of Appeal for Ontario, in Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc., 2015 ONCA 465, recently affirmed that exceptions to the "fresh start" rule in bankruptcy must be construed narrowly and applied only in clear cases. The Court grounded its ruling in what it characterized as the "twin" goals of the Bankruptcy and Insolvency Act: (1) the equitable distribution of the bankrupt's assets among the bankrupt estate's creditors; and (2) the financial rehabilitation of insolvent individuals (para. 1).

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A fundamental purpose of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "Act") is the financial rehabilitation of the "honest but unfortunate" debtor. One way that this purpose is achieved is through the automatic stay of proceedings granted under section 69(1)(a) of the Act.

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Bankruptcy provides debtors with a fresh start.  A clean slate, free from previous financial obligations. The general rule is that all previous debts are extinguished, subject to a very narrow band of exceptions, where the onus is on the creditor to establish the survival of the debt obligation post-bankruptcy.

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An ongoing insolvency proceeding under the Companies' Creditors Arrangement Act can now be added to the short list of circumstances in which a court will decline to follow a forum selection clause in a commercial contract.