'Cheat's charter' for divorcees "puts the genie back in the bottle" 

 

An 'oil baron,' multi-million pound business and international judicial cooperation - these are just some of the features of a milestone case; Prest versus Prest.
 
Mr. Prest, the founder of an energy company, separated from his wife. On divorce, Mr. Prest claimed the assets of the company he operated belonged to a trust and that he was £48 million in debt.
 
Mrs. Prest claimed the company assets were the sole property of Mr. Prest and that he was, in fact, valued up to hundreds of millions of pounds.
 
The court found that Mr. Prest was worth £37.5 million and awarded Mrs. Prest £17.5 million. In so doing, the court accused Mr. Prest of a "flagrant breach" of his financial disclosure obligations.
 

Piercing the corporate veil: family law versus commercial law

On appeal, the court called into question the circumstances in which the family court can "pierce the corporate veil" and transfer assets held in a company to a spouse.
 
Under family law principles, the corporate veil can be pierced when a company is owned and operated by one spouse, there are no third-party interests, and the company is used to fund the family's lifestyle.
 
However, in commercial law, a company is separate from its shareholders. Therefore, even sole company ownership - as was alleged in the Prest case - does not entitle piercing of the corporate veil in legal proceedings to retrieve company assets unless the company has been used for a dishonest purpose.
 
In the Prest case, the appeal court ruled, in essence, that spouses cannot delve into corporate structures where they suspect their partners may have concealed assets unless the entity has been used fraudulently or dishonestly.
 

Ruling has "put the genie back in the bottle"

By applying company law to a family law case, opponents argue that the appeal court inadvertently highlighted a loophole that is bound to be exploited by opportunist spouses keen to conceal their assets from their partners.
 
Peter Burgess, a solicitor at Withers, commented: "The Court...has handed a victory to those who seek to obfuscate the true extent of their wealth on divorce." The Prest appeal has even drawn criticism from the bench. "In a dissenting judgment, Lord Justice Thorpe...observed that the court has given 'an open road and a fast car' to money-makers who are not prepared to act fairly," notes Burgess.
 
James Copson, a partner at Withers, summed up the Prest appeal: "This ruling put the genie back in the bottle. The court has effectively sanctioned...a cheat's charter."
 
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