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Supreme Court upholds wife’s appeal in Prest v Petrodel

Lifting of the corporate veil allowed in 'exceptional' circumstances

12 June 2013

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Lifting of the corporate veil allowed in 'exceptional' circumstances

The Supreme Court has unanimously allowed the appeal by Yasmine Prest to treat assets held by companies and trusts within her former husband's control as matrimonial assets that should be transferred to her as part of a £17.5m divorce settlement.

In a decision this morning in the case of Petrodel v Prest [2013] UKSC 34, the Supreme Court overturned the Court of Appeal's decision not to pierce the corporate veil.

Giving the court's judgment, Lord Sumption said that each of the properties disputed were held beneficially in trust for the husband.

All five justices agreed, upholding the trial judge's view that the husband had deliberately sought to conceal this fact in his evidence.

"After examining the relevant findings about the acquisition of the seven disputed properties, the court finds that the most plausible inference from the known facts was that each of the properties was held on resulting trust by the companies for the husband," the court said.

The companies' failure to co-operate was to protect the properties, suggesting that they were in fact owned beneficially by the husband.

The lifting of the corporate veil, said Lord Sumption, can occur when "a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control".

The court may then pierce the veil, "but only for the purpose of depriving the company or its controller of the advantage which they would otherwise have obtained by the company's separate legal personality". Lord Sumption, however, said this had not happened in this instance.

The court rejected the view that section 24 of the Matrimonial Causes Act confers a distinct power to disregard the corporate veil in matrimonial cases: "The section invokes concepts of the law of property with an established legal meaning which cannot be suspended or taken to mean something different in matrimonial proceedings."

Lord Sumption gave the leading judgment and Lord Neuberger, Lady Hale, Lord Clarke and Lord Walker added concurring judgments.

At first instance Lord Justice Moylan in Prest v Prest [2011] EWHC 2956 pierced the corporate veil, concluding that Mr Prest was worth at least £37.5m.

The judge said Mr Prest was the only shareholder in various companies over which he had complete control, concluding that the assets in the name of the companies were assets to which Mrs Prest was entitled under section 24(1)(a).

An award of £17.5m was made to Mrs Prest, to be partially funded by transferring various properties owned by Mr Prest's companies to her.

Following Moylan J's judgment, three companies in Mr Prest's control appealed, paving the way for the Court of Appeal to deal with the two different approaches used by family judges and commercial judges (Petrodel Resources Ltd and Ors v Prest & Ors [2012] EWCA Civ 1395).

The Court of Appeal made it clear that they did not approve the family division's willingness to pierce the corporate veil in the absence of dishonesty or fraud. Thorpe LJ, however, dissenting, said this presented "an open road and fast car" for the more powerful spouse.

Following the ruling, Withers' family team partner James Copson said: "Wealth planning professionals are going to have to devise new ways to prevent the potential erosion of family wealth following a divorce."

More on Prest in the next issue of Private Client Adviser

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Family Wills, Trusts & Probate