Family breakdowns involving businesses can present particular difficulties and the last thing most families want to see is the disruption of the family business, particularly one which is long established and which may have been worked in for generations.
A landmark Supreme Court ruling, Prest v Petrodel Resources Ltd, is set to have widespread ramifications for businesses and individuals when it comes to what happens in the event of a divorce.
Yasmin Prest succeeded in securing a £17.5m divorce payout after a ruling by the Supreme Court. Mrs Prest was originally awarded this sum by the High Court in 2011 with her settlement being comprised of properties owned by her husband’s offshore companies.
The husband, Michael Prest, is a wealthy oil trader who the court considered was worth £37.5m. Throughout the expensive and lengthy proceedings Mr Prest refused to disclose details about his shareholdings in the companies. The High Court judge described the husband as “an extremely evasive witness” who failed to provide proper disclosure and honest evidence”.
The High Court originally ruled that the properties owned by Mr Prest’s offshore companies should be transferred to Mrs Prest. Her husband’s companies launched an appeal claiming that, as they owned the properties, not the husband, the court had no power to order a transfer to the wife.
The Court of Appeal agreed and upheld the long-established legal principle that a shareholder has no interest in, nor entitlement to, a company’s assets. Mrs Prest then appealed to the highest court in the UK, the Supreme Court, as without the properties there was no other way for her to receive her £17.5m settlement.
The Supreme Court has now ruled in favour of the wife and allowed the transfer of the properties. It has ruled that Mr Prest’s companies were in fact holding the properties on trust for the husband. Therefore, he is entitled to the properties and he can be ordered to transfer them to the wife.
The ruling reaffirms the principle of the separate legal identity of a shareholder and a company whilst adding that the “courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different”.
On a practical note, putting assets into a company structure does not now necessarily put them beyond the reach of the family courts. In this case, the judges probably thought it unfair that Mrs Prest should be kept out of her money because Mr Prest was judged to have been not open and honest with the court. However, they needed to be very careful not to undermine core legal concepts relating to companies and shareholders.
One way to protect assets further is to consider a pre-nuptial agreement and set out clearly what you want to happen to the business. These are now increasingly recognised by the courts and, if well-drafted, can ensure both parties know exactly where they stand should the relationship break down.
Family lawyers should liaise with their corporate counterparts on such agreements to ensure all-round advice is given.
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