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Beviss and Beckingsale
Zoe Gaitskell

Piercing the Corporate Veil

Posted by Zoe Gaitskell on February 12th 2014 in All , FAMILY .

It is a fundamental principle of company law that a company has a separate legal personality from its members.  People therefore often hold assets in their company’s name rather than their own.  Previously this would have had a knock on effect in Matrimonial proceedings, meaning that the assets held in the company’s name would not form part of the matrimonial pot and they would not be taken into account when dividing the Matrimonial assets on any subsequent divorce.  This position has now changed following the case of Prest v Petrodel Resources Ltd & Ors.

In Prest v Petrodel Resources Ltd & Ors, the Supreme Court held that there is a principle of English law which enables a court in very limited circumstances to pierce the corporate veil. It applies when a person is under an existing legal obligation or liability which he/she deliberately evades by placing the assets in the name of a company under his/her control. The court may then pierce the corporate veil for the purpose of depriving the company or its controller of the advantage which they would otherwise have obtained by the company's separate legal personality.

In this case however, it was held that the principle had no application. The wife sought an order in ancillary relief proceedings following divorce, for the transfer of properties owned by companies, which were wholly owned and controlled by the husband, to her. The husband had misapplied the assets of his companies for his own benefit but in doing so he had neither concealed nor evaded any legal obligation owed to his wife. Nor had he concealed or evaded the law relating to the distribution of assets of a marriage upon its dissolution. The legal interest in the properties had been vested in the companies long before the marriage broke up. Whatever the husband's reasons fororganising things in that way, there was no evidence that he had been seeking to avoid any obligation relevant in the Matrimonial proceedings. It followed that the piercing of the corporate veil could not be justified by reference to any general principle of law.  

The Court did however initially interpret the Matrimonial Causes Act 1973 extremely widely and held that the assets held by the company were assets to which the husband was entitled and therefore he may have to realise some of those company owned assets to meet the lump sum order made in favour of the wife.  This position was upheld unanimously by the Supreme Court.  

This is the first time that the Supreme Court has held that a court may, in certain circumstances, pierce the corporate veil, in the absence of specific statutory authority to do so.

Should you wish to discuss a matrimonial matter with one of our family solicitors please contact Karen-Lee Watts or Zoe Gaitskell on 01404 548050 or by email: klw@bevissandbeckingsale.co.ukor zg@bevissandbeckingsale.co.uk who will be happy to advise you.