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Divorce & The Limited Company

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The Supreme Court has at long last delivered its judgment in the anticipated case of Petrodel v Prest ruling that the properties held in the company’s names should form part of the multimillion divorce settlement to the wife.

CoinsThe case concerned the Nigerian Oil Tycoon Michael Prest and his former British wife Yasmin. They had married in 1993 and had four children at the time of their separation. In 2008 Mrs Prest petitioned for divorce and subsequently claimed that a number of properties, owned by the Petrodel Group but controlled by her husband, should be treated as family assets.

The Petrodel Group of offshore companies were found to be wholly owned as well as controlled by the husband. As such, the High Court ordered that the properties should form part of the divorce settlement directing that the husband should procure the transfer to the wife in partial settlement of her claim. The Court of Appeal however overturned that decision stating that it was wrong, even where a company was substantially owned by one party, to treat the assets of that company as being available for division in divorce proceedings. The Court of Appeal stated that it was beyond the jurisdiction of the court to deal with the assets of a company in divorce proceedings unless (i) the corporate personality of the company was being abused for a purpose which was in some relevant respect improper; or (ii) on the particular facts it could be shown that the assets legally owned by the company was held in trust for one of the parties. On the basis that the High Court had rejected both these possibilities the Court of Appeal felt compelled to reject the wife’s claim resulting in the Supreme Court having to make the final decision.

The Supreme Court made it clear that whilst it was appropriate to take account of the husband’s ownership and control of the company and his unrestricted access to its assets in assessing what his financial resources were, it should not simply direct a company (a legal entity in its own right) to transfer property to satisfy a spouse’s claim.

In a unanimous decision, the Supreme Court found that there had been no relevant impropriety to enable the court to pierce the corporate veil. Although the husband was said to have acted improperly in many ways during the proceedings, the properties had been acquired by the company long before the marriage fell apart. Accordingly, there was no evidence to suggest the husband had organised his financial affairs so as to frustrate his wife’s financial claims upon divorce and therefore no justification for the Court to pierce the corporate veil.

The Court was therefore left with deciding the issue based upon the second scenario that on the particular facts of the case the company was actually holding the properties on trust for the husband. The Supreme Court felt that this was the fair if only inference to be drawn here and that the husband had at all times been the beneficial owner of the properties. On that basis, the Court was able to order the transfer of the properties to the wife in satisfaction of her £17.5 million award.

This ruling demonstrates how an appropriate balance can be achieved between often competing strands of commercial, property and family law principles. It also highlights how three successive Courts can reach varying conclusions in what can be complex and challenging areas of law. It is therefore essential, where one or both spouses have interests in a business or company, that expert advice is sought at the outset when either divorce or separation is being contemplated. The case also raises interesting issues in other fields and may require shareholders, lenders and auditors to look more closely at a company’s corporate property portfolio in these circumstances.

Vanessa Fox and Antony Ball are both specialists in dealing with complex financial and property matters following divorce or separation and are able to call upon the breadth of expertise from the Firm’s Corporate and Property teams to ensure that our clients receive the best possible advice.
 

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