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Landmark decision of Petrodel v Prest, can the corporate veil be pierced?

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There has long been an established principle in English law that you cannot pierce the corporate veil. In other words a company is a separate legal entity and you cannot go behind it to release assets to satisfy matrimonial needs. So a long awaited decision was made today by the Supreme court on this very point where there was a unanimous decision of all seven Judges.

The case has attracted a lot of press coverage and the facts are well known. Briefly, Mr and Mrs Prest were married in 1993 and had four children. There was an a financial application made by the wife which was resisted by the husband and one of the grounds of doing so was that the assets did not belong to him but the Company. As such the Company had its own legal identity and therefore they were outside the husbands reach.

The Supreme court had to decide whether the properties in fact were beneficially owned by Mr Prest and not the company as he argued. The court found the properties had all been bought by the husband and then registered with the companies but the reality was they were held on trust for the husband and were therefore available for distribution.

The court also considered the issue of piercing the corporate veil and found that in most cases it was inappropriate to do so but there was a very limited exception. The court can go behind the curtain if it finds that a party who is under a legal obligation or liability is deliberately evading his responsibility by hiding behind the company and in such circumstances compel someone to pay out capital or assets.

There were some interesting comments made by the Judges in this case notably that a matrimonial court is not a civil court and as such the same principles cannot be applied. However, the Judges can draw on massive experiences and draw on inferences of what they believe a party may be concealing.

In essence the court just looked at the reality of the situation and made an order accordingly. This represents a very important decision for spouses who face an argument that the assets do not belong to their spouse but a company. The flip side of that argument is that is there is no point in a party who owns assets hiding behind a company or other vehicle ... all it will mean is massive legal costs. It is also an important point to bear in mind in looking at planning for the future and maybe it yet again reinforces the need for a prenuptial agreement.

By associate solicitor, Gillian Davies