Zhang v Cheng (No.2)

This matter concerned an application by the creditor, Mr. Zhang, for a sequestration order against the debtor, Mr. Cheng, in the Federal Court of Australia. The dispute arose from an outstanding judgment debt owed by Mr. Cheng to Mr. Zhang.

The primary legal issues before the Court were whether it possessed the power to make a sequestration order *nunc pro tunc* (meaning, with retrospective effect) and whether it should inquire behind the validity of the judgment debt upon which the sequestration application was based.

Justice Street considered the established principles regarding applications for sequestration orders, particularly in circumstances where a debtor seeks to challenge the underlying judgment debt. His Honour affirmed that a court generally has the power to make orders *nunc pro tunc* where appropriate, and that the discretion to go behind a judgment debt is exercised cautiously, typically only in exceptional circumstances, such as where there is evidence of fraud or a fundamental miscarriage of justice. In this instance, the Court found no such exceptional circumstances to warrant going behind the existing judgment.

Consequently, the Court made the sequestration order against Mr. Cheng.