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No Piercing the Corporate Veil for Matrimonial Settlements

Friday, 9 November 2012

The recent high profile divorce case of Petrodel v Prest [2012] has put a limit on the means with which courts can apply the fairness principle. The Court of Appeal ruled that the High Court cannot simply dismiss the established principles of company law in family law cases.

The issue at stake related to assets held within a company vehicle and whether or not the court could pierce the corporate veil to transfer those assets as part of a divorce settlement.

Case Facts
In Petrodel v Prest, Michael Prest, a Nigerian businessman was the founder and owner of an energy company, Petrodel Resources. The company was very successful and Mr Prest and his former wife Yasmin lived a wealthy lifestyle which included a £4 million family home in London and properties in Nigeria and the Caribbean. Early in their marriage, the property assets were transferred into various companies for wealth planning and tax avoidance purposes and other properties were subsequently acquired by the companies. The shares in the companies were wholly owned by Mr Prest.

When the couple sought divorce, the High Court assessed a fair award for the wife at £17.5 million. In making its judgement the court took into account the nature and extent of the husband’s wealth and whether an order could be made directly against shares or properties held by the companies. It decided that the order could be made directly against the properties because the husband was a 100% owner of the companies in which they were held and they were therefore effectively his properties. It also took into account the fact that he had ignored previous orders to transfer assets.

The Court of Appeal Ruling
The Court of Appeal reversed the decision of the High Court on an appeal by the companies. It held that the High Court was wrong to consider the husband as a beneficial owner of the properties simply because he owned 100% of the shares in the companies. It decided that the principles underlying the separation of legal and beneficial ownership in company law could not simply be ignored by family courts.

The Appeal decision was split with Thorpe LJ’s dissenting opinion echoing the thoughts of many family law practitioners. He suggested that the High Court judges in this case and others before them had attempted to achieve fairness at first instance. He warned that this decision gave ‘an open road and a fast car to the money maker who disapproves of the principles developed by the House of Lords that now govern the exercise of judicial discretion in big money divorce cases’.

If you would like to know more about the implications of this case or other family law issues please contact the Family Law Department by telephone on 0207 611 4848.