In Fred Perry (Holdings) Ltd v (1) Ivan Genis (2) Ayelet Haim Genis (unreported) 1 August 2014 (High Court), the court held that unsecured debt converted to secured recovery takes priority over family interests to uphold effective debt recovery.

Background

The claimant obtained judgment against Mr Genis for selling counterfeit goods under the claimant’s brand. Judgment was secured by way of a charging order on the family property solely owned by Mr Genis.  Mrs Genis claimed a beneficial interest in the property and had further protected her interest by way of a Home Right under s.30 Family Law Act 1996. Mr and Mrs Genis resided at the property with their two young children.  The claimant sought an order for sale of the property.

Held

Although the legal estate was vested in Mr Genis alone, the property was held beneficially by both of the Defendants. Therefore the court referred to the provisions of s.15(1) Trusts of Land and Appointment of Trustees Act 1996, specifically being the purpose of the property, the welfare of any minor and the interest of the secured creditor.  No guidance was provided as to the relative weight of each consideration.  

The following useful points arise from the judgment in this case:

  • The relevant case authorities suggested a tension between the legitimate pursuit of a debt and the rights of innocent victims effected by the recovery.
  • On balance, the commercial interests favoured the residential security of the family (Bank of Ireland Home Mortgages Ltd v Bell [2001] 2 All E.R. (Comm) 920considered).
  • The absolute right of a trustee in bankruptcy to obtain an order for sale of a bankrupt’s property under Insolvency Act s.335A suggested an overriding consideration of financial interests over family interests in a statutory context.
  • An order for sale could not be said to disproportionately interfere with the rights of the family under ECHR since the property was the only asset which could satisfy the debt.
  • Mrs Genis could not rely on absolute protection from interference with the family home, afforded by the Home Rights notice since this would be unfair to a spouse who had not registered their right over a property.  The test for a charging order would have to be s.15(1) Trusts of Land and Appointment of Trustees Act 1996.
  • The circumstances of each case will be the determinant aspect of the judgment.
  • Although the claimant succeeded, the court tempered the effects on the family by deferring the order for one year.

Comment

This decision confirms that the court views an order for sale of a matrimonial asset as a draconian weapon in a secured creditor’s armoury.  Secured creditors should only deploy it as a step of last resort and if the equity position justifies it.  The rights of beneficial owners, minors or any other innocent third party connected with the property may not prevent such an order, if the secured creditor can demonstrate no other alternative and a good chance of recovery.