The Supreme Court has ruled that assets vested in a company may belong beneficially to the controller, if the arrangement in respect of the assets are such as to make the company its controller's trustee for that purpose.
In November 2011, Mr. Justice Moylan, sitting in the High Court, ordered the husband, Michael Prest, to procure the conveyance of the matrimonial home to his wife, Yasmin Prest. Mr. Justice Moylan also ordered that Mr. Prest make a lump sum payment and periodical payments at a rate of two percent of that sum while it remained outstanding, together with school fees for the children. In addition Mr Justice Moylan awarded costs in favour of Ms. Prest, with a payment on account. He also ordered Mr. Prest to procure the transfer of seven UK properties owned by Mr. Prest's companies, Petrodel Resources Ltd and Vermont. The transfer of these seven properties to Ms. Prest is in partial satisfaction of the lump sum order.
Mr. Justice Moylan concluded that there was no general legal principle of law which entitled him to reach the companies' assets by piercing the corporate veil. This is because precedent shows that the separate legal personality of a company cannot be disregarded expect where it is being abused. While accepting there is no relevant impropriety, Mr. Justice Moylan found that in applications for financial relief ancillary to a divorce there exists a wider jurisdiction to pierce the corporate veil.
However, the majority of the Court of Appeal disagreed with Mr. Justice Moylan. Lord Justice Rimer held that the practice developed by the Family Division was beyond the jurisdiction of the Court except where either the corporate personality was being abused, or on the particular facts of the case it could be shown that an asset legally owned by the Company was held in trust for Mr. Prest. Lord Justice Rimer considered that Mr. Justice Moylan had rejected both of these possibilities on the facts, and therefore should not have made the order.
The question before the Supreme Court was whether the Court has the power order the transfer of seven properties to his wife given that the properties legally belong to the companies.
In his written judgment Lord Sumption outlined three possible legal bases on which the assets of the companies may be able to satisfy the lump sum order against Mr. Prest.
The first basis is where a court is at liberty to disregard to corporate veil in order to provide effective relief. On this point, Lord Sumption agreed with Mr. Justice Moylan. While Lord Sumption acknowledged that Mr. Prest has acted improperly in many ways, he found no evidence that Mr. Prest was seeking to avoid any obligation relevant to the divorce proceedings.
However Lord Sumption disagreed with Mr. Justice Moylan that the legislation on property adjustment orders in connection with divorce proceedings might be regarded as conferring a distinct power to disregard the corporate veil in matrimonial cases:
The third basis is on which the companies can be ordered to convey the properties to Ms. Prest is if the properties may belong beneficially to Mr. Prest. However Mr. Justice Moylan did not feel the need to make any decision on this issue.
In respect of the matrimonial home Lord Sumption concluded that, because the Prest family were not paying rent to Petrodel Resources Limited, this is a clear case of Mr. Prest using the company as a vehicle to hold legal title on the trust for himself. While the other five properties, Lord Sumption observed, were acquired by Petrodel Resources Limited in each case for a nominal consideration of one pound. As no explanation was provided to the Court for the "gratuitous transfer", there was nothing to rebut the presumption of equity that the company was not intended to acquire a beneficial interest in the properties.
The question for Lord Sumption now, was, who did hold the beneficial interest.
Of the seven properties, two of which were acquired in the name of Vermont, Lord Sumption concluded that Mr. Prest is the beneficial owner.
Therefore, in a unanimous verdict, the Supreme Court held that all seven properties should be transferred to Ms. Prest.
In his written judgment Lord Sumption outlined three possible legal bases on which the assets of the companies may be able to satisfy the lump sum order against Mr. Prest.
The first basis is where a court is at liberty to disregard to corporate veil in order to provide effective relief. On this point, Lord Sumption agreed with Mr. Justice Moylan. While Lord Sumption acknowledged that Mr. Prest has acted improperly in many ways, he found no evidence that Mr. Prest was seeking to avoid any obligation relevant to the divorce proceedings.
However Lord Sumption disagreed with Mr. Justice Moylan that the legislation on property adjustment orders in connection with divorce proceedings might be regarded as conferring a distinct power to disregard the corporate veil in matrimonial cases:
I do not accept this, any more than the Court of Appeal did. [Mr. Justice Moylan] was entitled to take account of [Mr. Prest's] ownership and control of the companies and his unrestricted access to the companies' assets in assessing what his resources were for the purpose of section 25(2)(a). But he was not entitled to order the companies' assets to be transferred to [Ms. Prest] in satisfaction of the lump sum order simply by virtue of section 24(1)(a). (emphasis added)Lord Sumption outlined three reasons for not giving the legislation the same effect as Mr. Justice Moylan did. The first reason is because it is axiomatic that the words in the statute are not read in a way that departs from the general system of law without expressing the intention of the legislation with "irresistible clearness". The second reason is the type of transfer in this case is ordinarily unnecessary to achieve a fair distribution of the assets. The third reason is because there is legislation on the avoidance of transactions intended to prevent or reduce financial relief. This is designed, in certain circumstances, to remedy a situation where a party attempts to frustrate proceedings by disposing of assets.
The third basis is on which the companies can be ordered to convey the properties to Ms. Prest is if the properties may belong beneficially to Mr. Prest. However Mr. Justice Moylan did not feel the need to make any decision on this issue.
In respect of the matrimonial home Lord Sumption concluded that, because the Prest family were not paying rent to Petrodel Resources Limited, this is a clear case of Mr. Prest using the company as a vehicle to hold legal title on the trust for himself. While the other five properties, Lord Sumption observed, were acquired by Petrodel Resources Limited in each case for a nominal consideration of one pound. As no explanation was provided to the Court for the "gratuitous transfer", there was nothing to rebut the presumption of equity that the company was not intended to acquire a beneficial interest in the properties.
The question for Lord Sumption now, was, who did hold the beneficial interest.
Of the seven properties, two of which were acquired in the name of Vermont, Lord Sumption concluded that Mr. Prest is the beneficial owner.
Therefore, in a unanimous verdict, the Supreme Court held that all seven properties should be transferred to Ms. Prest.
