The Supreme Court has handed down its judgment in the widely anticipated family law case of Prest v Petrodel Resources Limited and others.
Family lawyers hoped that the decision of the Supreme Court would provide clear guidance to family lawyers on the idea of ‘piercing the corporate veil’. As Lord Sumption explained in his judgment, that expression means disregarding the separate personality of the company. It is concept which has long been considered by the family law courts and for some family law cases it is a vital concept to allow for the sharing of family wealth on divorce.
This divorce case was first heard by the High Court in 2011 as a claim for a financial remedy by Yasmin Prest. As part of that case, Mr Justice Moylan awarded Mrs Prest a lump sum payment of £17.5M. This payment was to be satisfied in part by Mr Prest arranging for 7 properties owned by companies within the Petrodel Group to be transferred to Mrs Prest.
The companies appealed to the Court of Appeal on the basis that the Court did not have power to order their property be transferred to Mrs Prest. The Court of Appeal agreed with the companies: for such a transfer to be possible, Mr Justice Moylan would have need to have found either:
1. that the company structure was being abused by Mr Prest for an improper purpose (i.e. to protect the assets from the financial claims on divorce by Mrs Prest); or
2. that the companies owned the properties on trust for Mr Prest.
The Court of Appeal decided that as the Mr Justice Moylan rejected both of the possibilities, the order should not have been made.
The Supreme Court’s Decision
Mrs Prest appealed to the Supreme Court as she was concerned that without the transfer of the properties, she did not think that the lump sum payment would be paid. The Supreme Court decided that the properties should be transferred to Mrs Prest: the properties were held on trust for the Husband and therefore fell within scope of the family law court’s powers to order the transfer of property.
Do we now have a clear legal principle?
It would seem that the judges hesitated from defining a clear principle which could be applied in all divorce cases. Lord Neuberger recognised that “there is obvious value in seeking to decide whether the doctrine exists, and if so, to identify some coherent, practical and principled basis for it, if we can do so in this case.” Whilst Lord Neuberger quite clearly supports the idea and offers a definition for it, the other judges do not go as far in their judgments.
What does this mean for our family law clients who are divorcing?
For those clients whose assets are discretely hidden behind a corporate structure, this case provides an important reminder as to the requirement to provide full and frank disclosure of all the material facts. As Lady Hale warns “if they do not do so, the court is entitled to draw such inference as can properly be drawn from all the available material, including what has been disclosed, judicial experience of what is likely to be being concealed and the inherent probabilities, in deciding what the facts are.”
For the spouses of such business owners, the important thing is to seek specialist family law advice at an early stage in this complex area of law. It may be that individual divorce cases will need to be heard before the family law courts due to the very fact specific nature of the principle of ‘piercing the corporate veil’. Family law advice is likely to be key in obtaining a swift and amicable resolution to matters.
If you have any questions or concerns about financial issues arising out of divorce or separation or simply wish to discuss family issues generally, please do not hesitate to contact us.
James Maguire & Co is a specialist firm of Family Law and Divorce Law solicitors based in Wilmslow, Cheshire. We offer legal advice to parties going through a divorce including the financial issues which flow from this and children matters including child maintenance.
We can also advise on Schedule 1 Children Act 1989 applications.
We advise clients in the Wilmslow area and also to the surrounding areas of Alderley Edge, Bramhall, Hale, Altrincham, Manchester and the North West. We are also able to act for clients nationally and internationally subject to the jurisdiction of England and Wales. For advice please contact James Maguire by telephone +44 (0) 1625 529456 or by email email@example.com