Withers: Prest v Prest verdict may pierce the corporate veil in divorce cases - Spear's Magazine

Withers: Prest v Prest verdict may pierce the corporate veil in divorce cases

The aspect of the Court of Appeal Judgment that caught most attention was the apparent use of complex structures to avoid divorce pay outs

On 5 and 6 March 2013 the Supreme Court will hear the latest (and last) round of the Prest saga on a court’s ability to pierce through complex structures to award claimant spouses divorce settlements.

The case of Prest v Petrodel Resources hit the news headlines in the Autumn of last year, sending shockwaves throughout the family law world. The aspect of the Court of Appeal Judgment that caught most attention was the apparent use of complex structures to avoid divorce pay outs and the extent to which divorce courts can ‘pierce the corporate veil’ to get at underlying assets.

Michael Prest founded the Nigerian energy company, Petrodel Resources. He separated from his wife of 15 years and in the divorce he claimed that Petrodel’s assets did not belong to him, but to a family trust, and that he was truly massively in debt. His wife claimed this was hokum, that he and Petrodel were one and the same thing and that she should have a multi-million pound award paid for from the Petrodel corporate structure.

In commercial law there is an ages old principle that a company is independent of its shareholders and that corporate ownership, even sole ownership, will not permit piercing of the corporate veil in legal proceedings to access the company’s assets without some fraudulent or dishonest use of the company to conceal the truth.

Read more: Prest v Prest creates a ‘cheat’s charter’

In the divorce context family judges took a more flexible view, particularly where companies were owned and controlled by one spouse, there were no interested third parties and the companies funded the standard of living of the couple during the marriage.

The Court of Appeal rejected this distinction and the Supreme Court is now being asked to rule as to whether family cases should have a special opt out on the general law.

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

“The idea that there should be one rule for divorcing couples and another for the rest of the population seems rather odd. Divorce claimants will hate it if the Supreme Court endorses the Court of Appeal ruling. But the best result to be hoped for is clear guidance from the Judges both to stop the cheats and to protect those engaging in sensible financial planning for their whole family’s future.”

He adds:

“Given that in early February this year the Supreme Court rejected attempts by a Russian bank to extend the long-held principles to a case of alleged fraud, I will not be betting my house on victory for the wife in this case.”

Read more on divorce law from Spear’s

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