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Wife pushes for lifting of the corporate veil in divorce

Supreme Court hears arguments that would extend commercial law approach to family sphere

7 March 2013

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The former wife of an oil tycoon has pushed for the Supreme Court to lift the corporate veil in divorce cases and regard funds held by companies and trusts within her former husband’s control as matrimonial assets.

The appeal in the case originally brought by Mrs Prest against her husband was heard in the Supreme Court yesterday and today, with Petrodel and other companies – all businesses set up by Mr Prest – now being the respondent.

In a case that has pitted commercial lawyers against their family law brethren, the court heard this week that Mr Prest currently pays his wife £150 a week, little more than the yearly minimum wage, while maintaining their four children in private school at a cost of £100,000 per annum.

The respondent companies today argued that there was no implied power in section 24(1)(a) of the Matrimonial Causes Act to pierce the corporate veil and denied “root and branch” that the law should be interpreted in this way.

Tim Amos QC, counsel for the companies, conceded a £17.5m award in favour of Mrs Prest was “fully enforceable as a matter of law against the husband”, regardless of the outcome of this appeal.

But, he said, it was by no means clear that this was not enforceable despite Mrs Prest’s submission to the contrary.

He further pointed out to the justices that the companies’ legal team were not being instructed by Mr Prest, and had no dealings with him in regards to the case.

Hearing the appeal were Lord Justice Neuberger, Lady Hale and Justices Walker Wilson, Sumption, Clark and Mance. Both Lady Hale and Lord Wilson served in the family division of the High Court.

First instance

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.

The court is expected to return its judgment in the coming months.

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Family Wills, Trusts & Probate