Supreme Court will consider piercing of corporate veil
Posted: 4th March 2013
Seven Supreme Court justices are to consider a landmark ‘big money’ divorce case that has caused huge controversy and exposed a fundamental rift between family and commercial lawyers in respect of the correct treatment of corporate assets when it comes to assessing the true wealth of individuals.
Despite being criticised for his ‘ingenious and dishonest’ attempts to conceal his financial position from the divorce courts, businessman, Michael Prest, persuaded the Court of Appeal in 2012 that his ex-wife Marina’s £17.5 divorce settlement should be cut by more than half. In a majority decision, the court ruled that a family judge had been wrong to ‘pierce the corporate veil’ and award Mrs Prest six London properties that were owned by a string of companies and valued at £9 million.
In his dissenting ruling, family law specialist, Lord Justice Thorpe, expressed powerful misgivings about the result of the case and said of Mr Prest: “Once the marriage broke down, he resorted to an array of strategies, of varying degrees of ingenuity and dishonesty, in order to deprive his wife of her accustomed affluence. Amongst them is the invocation of company law measures in an endeavour to achieve his irresponsible and selfish ends. If the law permits him so to do it defeats the Family Division judge's overriding duty to achieve fairness".
But the majority of the court ruled that the family judge had been ‘wrong’ to equate the companies that owned the properties with Mr Prest and to regard their assets as his. Although he had been found to be in control of the companies, the judge had had no power to find that he was personally entitled to the properties they owned or to look behind the corporate veil and award them to his ex-wife. The court issued a resounding warning that wealthy couples tempted to transfer assets to companies for wealth protection or tax avoidance purposes ‘cannot ignore the legal consequences of their actions in less happy times’.
Recognising the widespread importance of the case, the Court of Appeal granted permission to appeal against its decision and Mrs Prest’s challenge will be heard by the Supreme Court in a two-day hearing commencing on Tuesday, March 5. The court is expected to reserve its decision until a later date.