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Piercing The Corporate Veil: Prest Vs Petrodel Resources

The Supreme Court has handed down a landmark judgement in favour of Mrs Prest in high profile matrimonial dispute. The Supreme Court ordered that seven disputed properties, owned by companies controlled by Mr Prest, be transferred to Mrs Prest in partial satisfaction of their £17.5 million divorce settlement. The Supreme Court held that even though the companies were the legal owners of the properties, they were held on trust for Mr Prest, as he was the sole beneficial owner and controller of the companies.

This case has wide corporate applicaton going beyond matrimonial proceedings, as the Supreme Court examined and gave guidance on the circumstances in which the ‘corporate veil’ might be lifted or pierced. The concept of the ‘corporate veil’ is that the assets, rights and obligations of a limited company do not pertain to the company’s shareholders. The Courts have been reluctant in the past to lift the corporate veil and treat the assets, rights and obligations of the company to pertain to its shareholders except in very limited circumstances. Here, the Supreme Court held that the corporate veil can only be pierced in situations where a person evades or frustrates an existing legal restriction, obligation or liability by deliberately interposing a company under his control. In that case the court may pierce the corporate veil in order to deprive the company or its controller of the advantage that they would have obtained by the company’s separate legal personality.

Piercing the corporate veil was not appropriate in this case because the properties were vested in the companies long before the marriage broke down. There was no suggestion therefore that Mr Prest had deliberately interposed the companies in order to avoid his obligations in the divorce proceedings. In the event the Supreme Court held that the companies held the properties on trust for Mr Prest, and so reached the same end by a different means.

Please contact Toby Stroh, head of Druces LLP’s Corporate & Commercial team if you require further information on the impact of this decision on corporate law.

This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force at August 2013

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