Withers: Prest v Prest creates a 'cheat's charter' - Spear's Magazine

Withers: Prest v Prest creates a ‘cheat’s charter’

Today the Court of Appeal has made a landmark ruling on spouses’ ability to break through complex structures to deliver a divorce settlement

Today the Court of Appeal has made a landmark ruling on spouses’ ability to break through complex structures to deliver a divorce settlement.

The case of Prest v Prest has hit the headlines several times over the last 12 months not merely because of the high profile of the husband, an ‘oil baron,’ and the substantial wealth involved or because the case involves cooperation between courts in different countries. The most topical aspect of the Judgment is the use of complex structures to avoid divorce pay outs as well as tax and to what extent the divorce courts can ‘pierce the corporate veil’ to get at those assets.

By a majority decision the Court of Appeal has rejected with resounding force the more liberal interpretation that judges in the Family Division have adopted over many years. In the lead Judgment Lord Justice Rimer rejected the notion that there should be a different approach between commercial and family cases and that wives should be “entitled to a preferential exemption” to the strict interpretation of the law long established in the commercial setting.

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James Copson, partner in the family team at law firm Withers LLP, comments:

“The decision is a disappointing one for many wives who confront on divorce a tangled web of companies used to shelter their husbands’ wealth.

“This ruling puts the genie back in the bottle. The court has effectively sanctioned for other cases the use of what could be perceived by the general public to be a cheat’s charter.”

Peter Burgess, solicitor in the family team at Withers LLP, adds:

“The Court of Appeal has handed a victory to those who seek to obfuscate the true extent of their wealth on divorce.

“In a dissenting Judgment Lord Justice Thorpe has observed that the court has given ‘an open road and a fast car’ to money makers who are not prepared to act fairly.”

Case background

Michael Prest, the founder of Nigerian energy company Petrodel Resources, separated from his wife of 15 years. In the divorce he claimed that Petrodel’s assets did not belong to him, but to a family trust under Nigerian customary law, and that he was in reality in debt to the tune of £48 million. His wife cried foul, and sought a multi-million pound settlement, claiming that Petrodel was 100% owned and controlled by Mr Prest and that he was worth tens, if not hundreds of millions of Pounds. The High Court estimated that he was worth at least £37.5 million and awarded the wife £17.5 million, accusing the husband of a “flagrant breach” of his financial disclosure obligations and of treating the proceedings “as a game.”

In the commercial setting there is a long established principle that a company is independent of its shareholders and that ownership of a company, even sole ownership, will not entitle piercing of the corporate veil in legal proceedings to get at the company’s assets unless there has been some fraudulent or dishonest use of the company to conceal the truth. Family judges took a more liberal view, especially where companies were owned and controlled by one spouse, there were no third party interests and the companies were used during the marriage as vehicles for the family’s lifestyle.

Read more on divorce law from Spear’s




 

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