In the recent English Supreme Court case of Petrodel Resources Ltd and others v Prest  UKSC 34, the Husband was ordered to transfer to the Wife, as partial settlement of a lump sum payment upon their divorce, 7 properties beneficially owned by him but legally vested in companies owned and controlled by him. It is clear that under limited situations, the separate legal personality of companies can be overcome so that assets vested in those companies are available for distribution in matrimonial proceedings.
The Husband declined to reveal the ultimate shareholder and denied any personal interest in the shares of the companies. However, evidence showed that (i) the directors of the companies accepted instructions from the Husband; (ii) the Husband’s personal expenditure far exceeded his salary of the claimed position as PRL’s chief executive; and (iii) the Husband had unrestricted access to the companies’ assets and basically used PRL’s assets to fund his and his family’s expenditure. In such premises, the court was able to infer that PRL and Vermont were wholly owned and controlled by the Husband.
Jurisdiction of Family Court
The Supreme Court emphasized that courts exercising family jurisdiction do not occupy a “desert island” in which general legal concepts have a special meaning or a wider application. The court is entitled to take into account of the husband’s ownership and control of the companies and his unrestricted access to the companies’ assets in identifying his available resources; but it does not follow that the court would necessarily order the assets of the companies owned and controlled by the husband to be directly transferred to the wife in satisfaction of a lump sum order, in the absence of circumstances satisfying the principle for piercing the corporate veil.
Piercing the Corporate Veil
The Supreme Court summarized the law into two distinct principles: (1) “Concealment principle”, whereby the court only looks behind the corporate veil to discover the facts which the corporate structure is concealing; and (2) “Evasion principle”, where a person deliberately evades or frustrates the enforcement of his existing legal obligation or liability by interposing a company under his control, the court may pierce the corporate veil only for the purpose of depriving that person’s or the company’s advantage that they would otherwise have obtained by the company’s separate legal entity.
In the present case, the Supreme Court noted that the 7 properties were already vested in PRL or Vermont long before the marriage broke up. Strictly speaking, the Husband did not interpose these companies in order to evade existing legal obligation i.e. his liability owed to his wife after the divorce. Therefore, the “evasion principle” does not apply. Although the Husband gave false evidence concerning his interest in the companies, that simply means the court must look behind the corporate veil in order to discover the truth concealed under the “concealment principle”.
Beneficial Ownership of the Properties
The last property concerned was purchased for substantial consideration by PRL in Vermont’s name, but the court found that such a residential property has nothing to do with the oil trading business of PRL. Furthermore, a consistent pattern could be discerned by which the Husband causes properties to be acquired by companies under his control with funds provided by himself. In the absence of explanation, the Supreme Court concluded that this property was beneficially owned by the Husband.
In conclusion, even if a party to the marriage conceal his/her assets behind the corporate veil by interposing a company as legal holder of the properties, the court may still order the companies to transfer properties to the other party under the MPPO being the equivalent of the 1973 Act , either by piercing the corporate veil under the evasion principle, or by virtue of a legal relationship between the company and the husband/wife, such as trust or agency, as disclosed under the concealment principle.
The law and procedure on this subject are very specialized and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
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Published by ONC Lawyers © 2013