Australian Securities Commission v Zarro, P

No. 8\q... /g! ........ .
NOT FOR DISTRIBUTION J E D ~ ~ ~ ~ , E N T

JN THE FEDERAI; COURT

) )
9F AUS-

) No. QG 3018 of 1991

-LAND DISTRICT REGISTRY)

DNERAI; DIVISION 1
BETWEEN:

AUSTRALIAN SECURITIES COMMISSION

Applicant

- and -

PASOUAL ZARRO AND O W

Respondents

. --

z!!xE: Heerey J.
.Pu&Z:

Brisbane 1
DATE : 18 November 1991

2 X A L COURT OF

PRINCIPAL REGISTRY
$X TEMPORE REASONS FOR

On Friday afternoon, 15 November 1991, on the ex parte application of the Australian Securities Commission I made certain injunctive orders which were to have effect until 4:15pm tomorrow. I also made an order for the appointment of receivers and an order conferring certain powers on them.

decision the Full Court of the Supreme Court of Victoria said:

On reconsideration of this matter over the weekend I have come to the clear conclusion that I should rescind and vacate that part of the order which appointed the receivers. I have had the opportunity since then to reconsider the recent leading case on this subject, National Australia Bank Ltd v Bond Brewina Holdinas Lt$ [l9911 1 VR 386. At p.539 of that

The appointment of a receiver is one of the oldest remedres of the Court of Chancery, and a very useful remedy it is. But its very efficacy means that a corresponding caution must attend its employment. Where a receiver is sought to protect property of which no-one is in actual possession, no-one will be ousted by the appointment and probably no great h a m will be done. But where the subject matter is in the defendant's hands he may suffer an irreparable wrong by being dispossessed and of course this danger will weigh with a judge from whom the remedy is sought. The appointment of a recerver which is to be, so to speak, at the expense of the defendant's possession and without hrs consent is a step never to be taken without proper consideration of the defendant's positron.

Authority was cited. The Court continued:

Where a receiver is sought, not merely of a particular asset of the defendant, but of all his assets, particular caution is required and where, as in the present case, the receiver is to possess himself of and to manage the assets and undertaking of a collectron of companies which, whether they are solvent or not, are in a very large way of business, very great circumspection is required. Of course in a strong enough case the court might, without warnrng to a trading company, divest it of control of its undertaking and assets. But it must always be borne in mind that the appointment of a receiver in such a case authorises an irresistible invasion and that even if the army of occupation is withdrawn after only a short tune things may never be the same again. Rights of property and the company's privacy are violated. Only the most pressing need can warrant such an invasion without notice. Quite apart from the taking out of the companies' hands of control of their assets and the management of their busrnesses, there was in the present case the added conarderatron (which will not infrequently be present where a receiver is appointed to a company) that the making of the order might well have most serious legal consequences for the companies or for related companies having regard to the terms of securrties given by them. And in addition to the legal consequences there was the connnercial consideration that, ai ~icarda,- Receivere and Managers, p.4, has observed, the receiver is often seen not as the company doctor but

as the undertaker, so that a blow is struck to the standing and
credit of the defendants.

In the present case the order sought, although interim or interlocutory, was one wrth extremely grave consequences for the defendants. Putting to one side a winding up order, which will in the normal course ultimately result in a company's being given its
quietus, we cannot for the moment think of an order of greater
consequence to a company than one which, until further order, robs
it of its control over its own aaeets and business.
No court will make such an order unless convinced of its
necessity. A case for aome kind and degree of interlocutory

relief may be made out which falls short of this extremely drastic remedy; for example, the court may not be satisfied, - and it is of course for the applicant to persuade the court that nothing less than what he seeks will do - that in all the circumstances it should do more than grant an injunction. At times the court will
be induced to refuse the remedy of a receiver by undertakings
offered by the defendant.

Returning to the present case, it seems clear enough that the mischief apprehended by the Commission was the removal of funds from various bank accounts, and it seems to me that such risk is quite adequately contained by the injunctions which I have granted which, as I have said, are to last until 4:15pm tomorrow when the Court will consider whether they should be renewed pending trial.

I might also add that a prominent feature of the Bond Brewinq

case was the lack of any undertaking as to damages on behalf of the plaintiff. I appreciate, of course, that in relation to the Commission the statute expressly absolves it from the normal obligation to give undertakings of damages when interlocutory relief is sought (see s.1324(8)). However, the drastic nature of the remedy of appointment of receivers and the injustice of it being granted without notice to the defendant are matters which the Full Court also emphasised and are still relevant in this case. I therefore will vacate paragraphs 3 and 4 of the order I made on 15 November.

I certify that this and the
preceding (2) pages are a true copy of the Reasons for Judgment of the

Honourable Mr Justice

Heerey

Bppearancea

Counsel for the Applicant: Mr G Egan
Solicitors for the Applicant: Australian Securities
Commission
No appearance for the Respondents

The case of Australian Securities Commission v Zarro and Ors involved the Australian Securities Commission, an applicant, and the respondents, Pasoual Zarro and others. The dispute arose from allegations of corporate misconduct and the need for urgent injunctive relief to prevent the removal of funds from bank accounts. The Federal Court of Australia, under Justice Heerey, was tasked with addressing the application for an injunction and the appointment of receivers over the respondents' assets. The primary legal issue before the court was whether the appointment of receivers was necessary to prevent the apprehended mischief of the respondents removing funds from their accounts. The court had to balance the drastic nature of appointing receivers, which involves dispossessing the defendants of control over their assets and businesses, against the need to protect the interests of the applicant and prevent potential wrongdoing.

The court considered the recent leading case of National Australia Bank Ltd v Bond Brewing Holdings Ltd, which emphasized the need for extreme caution when appointing receivers, especially when dealing with large business entities. The court noted that receivers could have severe consequences for the defendants, including violations of property rights, impairment of credit, and potential legal ramifications for related companies. In this case, the court found that the risk of the respondents removing funds from their accounts could be adequately addressed through the injunctions already granted, which were set to last until the next court sitting. Given the lack of any undertaking as to damages and the drastic nature of the remedy sought, the court determined that appointing receivers was not warranted without notice to the defendants. Consequently, Justice Heerey rescinded the order appointing receivers, emphasizing that such a remedy should only be employed in the most pressing circumstances and with proper consideration of the defendants' position.

The court ultimately vacated the part of the order appointing receivers and maintained the injunctions already in place. This decision underscored the principle that the appointment of receivers is an extraordinary measure, requiring compelling justification and careful consideration of the potential harm to the defendants. The court's reasoning highlighted the need for the applicant to demonstrate that no less drastic form of relief would suffice, and the court's order reflected a cautious approach in granting such significant relief. The final orders included the injunctions to remain in effect until the next court sitting, with the order appointing receivers rescinded.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established

Where a receiver is sought, not merely of a particular asset of the defendant, but of all his assets, particular caution is required and where, as in the present case, the receiver is to possess himself of and to manage the assets and undertaking of a collectron of companies which, whether they are solvent or not, are in a very large way of business, very great circumspection is required. Of course in a strong enough case the court might, without warnrng to a trading company, divest it of control of its undertaking and assets. But it must always be borne in mind that the appointment of a receiver in such a case authorises an irresistible invasion and that even if the army of occupation is withdrawn after only a short tune things may never be the same again. Rights of property and the company's privacy are violated. Only the most pressing need can warrant such an invasion without notice. Quite apart from the taking out of the companies' hands of control of their assets and the management of their busrnesses, there was in the present case the added conarderatron (which will not infrequently be present where a receiver is appointed to a company) that the making of the order might well have most serious legal consequences for the companies or for related companies having regard to the terms of securrties given by them. And in addition to the legal consequences there was the connnercial consideration that, ai ~icarda,- Receivere and Managers, p.4, has observed, the receiver is often seen not as the company doctor but	as the undertaker, so that a blow is struck to the standing and
credit of the defendants.
In the present case the order sought, although interim or interlocutory, was one wrth extremely grave consequences for the defendants. Putting to one side a winding up order, which will in the normal course ultimately result in a company's being given its
*quietus,* we cannot for the moment think of an order of greater
consequence to a company than one which, until further order, robs it of its control over its own aaeets and business.
No court will make such an order unless convinced of its
necessity. A case for aome kind and degree of interlocutory
relief may be made out which falls short of this extremely drastic remedy; for example, the court may not be satisfied, - and it is of course for the applicant to persuade the court that nothing less than what he seeks will do - that in all the circumstances it should do more than grant an injunction. At times the court will
be induced to refuse the remedy of a receiver by undertakings
offered by the defendant.

Counsel for the Applicant:	Mr G Egan
Solicitors for the Applicant:	Australian Securities Commission
No appearance for the Respondents