By Harriet Serpis, Solicitor. Contact Thomson Snell and Passmore 01892 510000.
It is a key principle of company law that a company has a distinct legal personality from its owners. This “corporate veil” acts as a barrier so that the company, and not its owners, is responsible for the company’s obligations and actions.
Whether this corporate veil can be “pierced” has recently been the subject of an argument relating to whether the assets owned by the company can be taken into account in determining the company owner’s personal assets.
In the recent matrimonial case of Prest v Petrodel (2013), the Supreme Court confirmed that, in very limited circumstances, the court can pierce the corporate veil to deprive the owner of the advantage he would have gained from sheltering his assets in the company (and therefore “behind” the corporate veil).
In Prest it was alleged by the wife that Mr Prest transferred a number of properties to a company which he controlled, to prevent the properties forming part of their divorce settlement. The wife argued that, in reality, the properties were held on trust for the husband and so could be transferred to her as part of the divorce settlement. Mr Prest was unable to provide evidence showing why the properties were owned by his company. The wife’s argument was therefore successful.
In reaching its judgment, the Supreme Court did not actually need to pierce the corporate veil, because it found that the company simply held the properties on trust for the husband. The court also said that the circumstances when the corporate veil might be pierced would very rarely arise.
Despite this, Prest highlights the importance of maintaining proper corporate documentation which shows why a company’s affairs are arranged in a particular way. Had Mr Prest done this, it is less likely that the court would have the ordered the transfer of the properties to the wife.