law south east 37


Striking out over business assets - the impact of Prest v Prest


‘Devious men who want to avoid making fair provision for their wives will rejoice at this decision,’ was the reaction of Jeremy Posnansky QC to the Court of Appeal’s judgment in Prest v Prest last October. Now that the Supreme Court will have the definitive word in the appeal next month, it is worth considering why this case has caused so much controversy among family lawyers, and what it means for husbands and wives (devious or otherwise) with an interest in a limited company, writes Miranda Mourby of Manches family team


Prest, who made his fortune in the oil trade, did not strike the trial judge as particularly straightforward. Worth "tens if not hundreds of millions of pounds" according to his wife, or negative £48m by his own account, he had set up a number of companies which formed part of the complex Petrodel group structure.


Under company law, the case would have been decided very differently


The judge found that the husband used the companies as his own private money pot to meet his and his family’s personal expenditure. Although contractually "assumed to report to the board for issues pertaining to the management of the company" he had "full discretion" in the way he managed the company in so far as his actions were "for the benefit of the company and its shareholders." As Prest was the sole shareholder, the judge concluded that he was the beneficial owner of the companies’ assets, and ordered the transfer of company-owned properties to the wife.


Under company law, the case would have been decided very differently. For over a century, the basic principle has been that ‘shareholders in a company have no interest in, let alone entitlement to, the company’s assets.’ For a court to make an order against the assets of a company to satisfy the liability of a shareholder is said to be ‘piercing the veil’ between them. This is only done where:


• The company is a façade or sham and there are no third-party interests involved


• There is ‘impropriety’, that is, the company has been set up in order to shield its sole shareholder from liability


• It is in the interests of justice to do so.


Despite his frustration with Prest’s "false evidence", the judge concluded that the company had been set up "for conventional reasons including wealth


THE BUSINESS MAGAZINE – THAMES VALLEY – MARCH 2013


protection and the avoidance of tax." As far as two out of three of the judges in the Court of Appeal were concerned, that should have been that. Without this impropriety, they ruled that the Judge had no grounds to find that the husband beneficially owned the company’s assets.


...spouses, meanwhile, might have to take note that any ‘family’ wealth owned by a company might end up being ‘protected’ a little better than they bargained for


There is a clash in legal cultures: family lawyers generally have a wide discretion to effect a division of property they think fair in all the circumstances. The trial judge said the assets were "effectively the husband’s property". Thorpe LJ (a former family division judge) interpreted this as meaning that they belonged to him "in reality". "With respect," demurred Lord Justice Rimer, "that is to substitute for the judge’s own imprecise wording a phrase of like imprecision".


If the Supreme Court upholds the Court of Appeal’s decision, it would send out a clear signal to the family courts that they cannot treat company assets any differently from their chancery counterparts. Directors and shareholders entering matrimonial proceedings could take comfort that the courts would take the same view of their company they always had. Their spouses, meanwhile, might have to take note that any ‘family’ wealth owned by a company might end up being ‘protected’ a little better than they bargained for.


Details:


Oxford office Jane Mitchell 01865-813615


Reading office Kerry Fretwell 0118-9282658


www.businessmag.co.uk


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