A Chink In The Corporate Veil?

The corporate veil is a fundamental principle of English law that a company has a distinct and separate legal identity from that of its owner (Saloman v A Saloman). This distinction ensures that a company cannot be liable for the obligations of the owner and vice versa. Pursuant to this principle, property owned by a company cannot be directly accessed when the owner is being pursued and should therefore remain the property of that company.

The landscape prior to the case

Family investment companies have become increasingly common as a tax efficient means of wealth preservation and protection. However, there has been a reluctance to exploit this method in recent years as a result of the Family Division's willingness to retrieve the assets of the company to achieve an equitable outcome following a divorce between the company owner and their spouse. This practice disregards the separate legal personality of the company from the owner and is known as piercing the corporate veil. Both academics and those practising within the legal profession felt that the Family Courts had overstepped the mark in this regard and were employing this practice too readily. Prest v Petrodel Resources Limited & Ors [2013] UKSC 34 was therefore highly anticipated as the Supreme Court's definitive answer as to the circumstances in which the corporate veil can be pierced.

Prest v Petrodel Resources Limited & Ors

This appeal centred on proceedings for financial remedies following a divorce between Michael Prest ("the Husband") and Yasmin Prest ("the Wife"). The case primarily concerned the legal position of a number of properties belonging to the Petrodel Group, a group of companies which were wholly owned by the Husband. The issue before the Supreme Court was whether the corporate veil could be pierced in order that the Wife could seek financial remedies from the properties owned by the companies.

Under the doctrine of the corporate veil, the Wife would not be entitled to the properties owned by the Petrodel Group because each company has a separate legal personality to the Husband. Thus, the question for the Court was whether the Husband, who owns and controls the companies, could be said to be identified with them in law by virtue of that ownership and control. If this was found to be the case the court could pierce the corporate veil and disregard the separate personalities of the companies from their owner (the Husband).

The Supreme Court held that there were...