The High Court dismissed as champertous and ‘trafficking in litigation’ a scheme seeing investors buying up unsecured creditors’ rights, after they were left partly-paid in an insolvent liquidation, and then seeking to sue directors of the insolvent company.
If successful, the ploy by Gautam Jindal’s Ingenious Asset Management Ltd could have seen unsecured creditor payouts from Global Dairy Ltd’s liquidation together with damages from its directors exceeding one hundred cents in the dollar.
Global Dairy wholesaled dairy products. Controlled by Auckland-based Simon McConnon, it went into liquidation insolvent in March 2020.
The High Court was told liquidators PKF Corporate Recovery reached a $250,000 out of court settlement against present and past directors of Global Dairy alleging breaches of Companies Act directors’ duties. This settlement was described as being in full and final settlement.
It was sufficient to pay unsecured creditors 48 cents in the dollar.
Two months later, Ingenious Asset sued Global Dairy directors, also alleging breaches of Companies Act directors’ duties.
Ingenious Asset said it was exercising ongoing legal rights of partly-paid unsecured creditors, having taken an assignment of their rights at the cost of one dollar.
Justice Walker ruled the assignments valid, but in context of Global Dairy’s liquidation not enforceable.
The one dollar purchases were an assignment of a ‘bare cause of action:’ being each unpaid creditor’s Companies Act right to seek compensation from directors for reckless trading; a right seldom exercised in practice since it is usually impracticable and uneconomic.
Courts generally refuse to enforce any assignment of a bare legal right on public policy grounds, as trafficking in litigation; leading to speculative litigation and potentially misuse.
Litigation is not a commodity to be bought and sold. In legal jargon, it is champertous and illegal to buy someone else’s legal rights without first having a collateral prior interest in the dispute.
Ingenious Management had no prior trading relationship with Global Dairy to justify its interest in pursuing a claim against the company or its directors, Justice Walker ruled.
Ingenious Asset’s separate argument that the assignments gave it trust law claims against the directors also failed. This required evidence that deposits paid in advance by Global Dairy customers should have been held in trust.
No trust relationship existed, Justice Walker ruled.
In 2023, control of Ingenious Asset was transferred from Gautam Jindal to his spouse, Dr Deepika Jindal.
Ingenious Asset Management Ltd v. McConnon – High Court (15.12.25)
26.053