The case of Prest v Prest & Others  EWCA Civ 325 (also known as Petrodel) has changed the way family lawyers will need to view cases with corporate structures. Previously we have, in certain situations, been confident of the court's ability to "pierce the corporate veil". This has allowed the court to order the transfer of assets owned by a company, as if they were owned individually by one of the parties. This has essentially allowed family lawyers, in certain circumstances, to ignore company law in order to achieve a fair settlement.
The Court of Appeal's decision in Prest has turned this principle upside down and unless there is a successful appeal to the Supreme Court, family lawyers, like other lawyers, will be bound by the stricter principles of company law.
The case of Prest was perhaps extreme and unusual in its facts.
Michael and Yasmin Prest married in 1993 and had four children. They lived an opulent and extravagant lifestyle in London during the marriage. The background of the wealth was in the oil industry with the husband owning a number of companies including a Nigerian oil company called Petrodel. Following the parties' separation in 2008 the case was fiercely contested with legal fees in excess of £3 million being incurred. The husband's conduct was strongly criticised at every step of the legal process as he failed to provide adequate financial disclosure.
In the lower court Moylan J ordered the sale of a number of properties owned by the husband's companies, with the sale proceeds to be paid to the wife. The judge ordered the payment of net sale proceeds to the wife to ensure that she received a "fair share" of the husband's vast wealth. The value of the assets transferred to the wife totalled some £17 million of the husband's total wealth of "not less than" £37 million.
The majority in the Court of Appeal disagreed with Moylan J's decision. Lord Justice Rimer, giving the main judgment, held that the corporate veil could only be pierced in exceptional and very specific circumstances. Essentially, the company structure would not only need to be owned and controlled 100% by the husband but, impropriety would also need to be shown. In the case of Prest, the company structure of asset ownership had been in place for years and was in no way linked to the divorce, or aimed at defeating the wife's claims. Therefore the court was bound by commercial principles and had no power to order a sale of assets owned by Petrodel (albeit that this was wholly owned by Mr Prest).
However, the judgment would suggest that in a situation where a husband, at the time of divorce, transfers all his assets into a company, in order to prevent a transfer to the wife, the court will still be able to pierce the corporate veil.
Thorpe LJ, the only family judge sitting in the Court of Appeal hearing the case gave a powerful dissenting judgment. He obviously feels strongly that the Supreme Court (if there is a further appeal) should reverse the decision in Prest, so that we return to the more discretionary world where judges in the family court have greater power to "override" corporate principles in the interests of reaching a fair and just outcome between the parties.
In the meanwhile when faced with a case with circumstances akin to Prest we will need, if acting for the wife, to consider alternative ways (be that a transfer of shares, sale of the business or a deferred clean break) to ensure she receives a "fair" division of the assets.