It may have taken 5 years of litigation but we finally have a Supreme Court decision which limits the activities of a spouse seeking to use company law to hide their interests in assets – or do we?
The decision in Prest v Petrodel Resources Ltd & Others  has been hailed as a recognition of reality and a triumph for common sense. In that case, the Supreme Court decided that 7 properties held by companies wholly owned and controlled by the husband were held on a resulting trust for him and the properties could therefore be transferred to the wife in part settlement of a lump sum order made in her favour in financial remedy proceedings within divorce proceedings.
This case is a landmark decision and a very important for family lawyers. However, it is important to remember that the court undertook a specific facts based analysis of this case, i.e. it was established (in the absence of contrary evidence) that all the money for purchase of the 7 properties came personally from the husband, mostly at a time when the companies were not trading and therefore would not have had the capital to purchase the properties. Consequently, it was found the companies held the properties on a resulting trust for the husband. In addition, the acquisition of property was outside the normal business of the companies.
The case has restated the principle which all family lawyers must bear in mind i.e that companies have a separate identity from the individuals running the company and the court will not look behind the corporate veil except in very limited circumstances, applying the concealment principal and the evasion principal.
The concealment principal is where a company structure is used to conceal the real beneficiaries of the company. In such circumstances (assuming the identity of the individual(s) is relevant) the court may lookbehind the corporate veil to discover the true facts.
The evasion principal is where the true owner of the company uses the company’s separate legal entity to evade a liability he/she would otherwise have. In other words, the company or true owner must not be allowed to gain an advantage that would not be available if they had not put the company structure in place. In such circumstances the court will pierce the corporate veil by disregarding the company structure.
The Supreme Court has made it clear the piercing of the corporate veil will only be done in the most exceptional of circumstances. In any event, in most cases there will be sufficient evidence of the legal or equitable rights of the spouse in relation to the company, so that it is not necessary to pierce the corporate veil.
The other immediate problem are cases where the company is not wholly owned or controlled by the spouse seeking to conceal his/her interests. What approach will the courts adopt where the spouse is not the sole shareholder and others have a genuine interest in the company?
Although the decision in Prest has provided some much-needed clarification, we will have to be on the lookout for attempts by determined spouses to organise their affairs in such a way as to ensure the facts of their case do not fall within or are not similar to those in the case of Prest.
For more information about family law and companies, please contact Alberta Tevie on 020 8956 2655 or at firstname.lastname@example.org