diff --git a/packages/contracts/foundry_test/CdpManager.Liquidation.t.sol b/packages/contracts/foundry_test/CdpManager.Liquidation.t.sol
index 6a0a22015..ae4c8ef7e 100644
--- a/packages/contracts/foundry_test/CdpManager.Liquidation.t.sol
+++ b/packages/contracts/foundry_test/CdpManager.Liquidation.t.sol
@@ -847,6 +847,35 @@ contract CdpManagerLiquidationTest is eBTCBaseInvariants {
         );
     }
 
+    function test_ZeroSurplus_WithFullLiq_ForICRLessThanLICR(uint256 ICR) public {
+        ICR = bound(ICR, cdpManager.MCR() + 1, cdpManager.CCR());
+
+        // ensure there is more than one CDP
+        _singleCdpSetup(users[0], 156e16);
+        (address user, bytes32 userCdpid) = _singleCdpSetup(users[0], ICR);
+
+        // price drop to trigger liquidation
+        uint256 _originalPrice = priceFeedMock.fetchPrice();
+        uint256 _newPrice = (_originalPrice * (cdpManager.LICR() - 1234567890123)) / ICR;
+        priceFeedMock.setPrice(_newPrice);
+        uint256 _currentICR = cdpManager.getICR(userCdpid, _newPrice);
+        assertTrue(cdpManager.getSyncedICR(userCdpid, _newPrice) < cdpManager.LICR());
+
+        // prepare liquidation
+        address _liquidator = users[users.length - 1];
+        deal(address(eBTCToken), _liquidator, cdpManager.getCdpDebt(userCdpid)); // sugardaddy liquidator
+
+        // ensure there is no surplus for full liquidation if bad debt generated
+        uint256 _surplusBalBefore = collSurplusPool.getSurplusCollShares(user);
+        uint256 _redistributedIndexBefore = cdpManager.systemDebtRedistributionIndex();
+        vm.prank(_liquidator);
+        cdpManager.liquidate(userCdpid);
+        uint256 _surplusBalAfter = collSurplusPool.getSurplusCollShares(user);
+        uint256 _redistributedIndexAfter = cdpManager.systemDebtRedistributionIndex();
+        assertTrue(_surplusBalBefore == _surplusBalAfter);
+        assertTrue(_redistributedIndexAfter > _redistributedIndexBefore);
+    }
+
     function testFullLiquidation() public {
         // Set up a test case where the CDP is fully liquidated, with ICR below MCR or TCR in recovery mode
         // Call _liquidateIndividualCdpSetupCDP with the appropriate arguments
diff --git a/packages/contracts/test/CdpManager_SimpleLiquidation_Test.js b/packages/contracts/test/CdpManager_SimpleLiquidation_Test.js
index ab7a7e8c9..4ce9baced 100644
--- a/packages/contracts/test/CdpManager_SimpleLiquidation_Test.js
+++ b/packages/contracts/test/CdpManager_SimpleLiquidation_Test.js
@@ -1043,4 +1043,30 @@ contract('CdpManager - Simple Liquidation with external liquidators', async acco
       assert.isTrue(_batch5.length == 3 && _batch5[2] == _aliceCdpId && _batch5[1] == _bobCdpId && _batch5[0] == _carolCdpId);	  
   })
   
+  it("Full liquidation should leave zero collateral surplus if bad debt generated", async () => {
+      let {tx: opAliceTx} = await openCdp({ ICR: toBN(dec(149, 16)), extraEBTCAmount: toBN(minDebt.toString()).add(toBN(1)), extraParams: { from: alice } })
+      await openCdp({ extraEBTCAmount: toBN('951439999999999990'), extraParams: { from: bob, value: toBN('18311039310716208939') } })
+      let _aliceCdpId = await sortedCdps.cdpOfOwnerByIndex(alice, 0);
+      let _bobCdpId = await sortedCdps.cdpOfOwnerByIndex(bob, 0);
+      let _oldPrice = await priceFeed.getPrice();
+      console.log('cdpCollateral=' + (await cdpManager.getSyncedCdpCollShares(_bobCdpId)));
+      console.log('cdpDebt=' + (await cdpManager.getSyncedCdpDebt(_bobCdpId)));
+	  
+      // shuffle a bit for the share rate to trigger liquidation since ICR < LICR
+      await collToken.setEthPerShare(toBN("827268193736210321"));
+      let _icr = await cdpManager.getSyncedICR(_bobCdpId, _oldPrice);
+      assert.isTrue(_icr.lt(LICR));
+      let _tcr = await cdpManager.getSyncedTCR(_oldPrice);
+      assert.isTrue(_tcr.lt(CCR));
+	  
+      // full liquidation should leave bad debt and zero collateral for this CDP
+      let _surplusBalBefore = await collSurplusPool.getSurplusCollShares(bob);
+      let _redistributedIndexBefore = await cdpManager.systemDebtRedistributionIndex();
+      await cdpManager.liquidate(_bobCdpId, {from: alice});
+      let _surplusBalAfter = await collSurplusPool.getSurplusCollShares(bob);
+      let _redistributedIndexAfter = await cdpManager.systemDebtRedistributionIndex();
+      assert.isTrue(_surplusBalBefore.eq(_surplusBalAfter));
+      assert.isTrue(_redistributedIndexAfter.gt(_redistributedIndexBefore));
+  })
+  
 })
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