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Supreme Court allows appeal in Prest v Petrodel

On 12th June 2013 The Supreme Court delivered its Judgment on the appeal in Prest v Petrodel Resources Ltd and others (Respondents) [2013] UKSC34.

Why do you need to know about this? Because, whilst it relates to divorcing couples with mid to high net-worth financial circumstances, the principles will apply to many less prominent divorce cases. Alison Bradley, partner in Wards Solicitors' Family team in Bristol explains: "It is not only the wealthy who operate their businesses through limited companies but many people who are effectively sole traders do as well. For example, it is common for clients from local builders and developers through to the corner shop owner running a business this way. This Supreme Court decision will be binding on all the lower courts and will apply far more widely than many reports in the press suggest."

The background

When they got divorced the husband, Michael Prest, was ordered to pay his wife, Yasmin, a lump sum of £17.5m. This remains unpaid.

The Respondents in this case were actually all companies, registered in the Isle of Man, which are under the control of Michael Prest. Yasmin Prest initially obtained an order that the properties held by the Petrodel Group (one of the respondents) should be transferred to her. The intention was that this would reduce the lump sum she was owed by her former husband. However, the companies successfully appealed that order.

When the case went to The Court of Appeal they directed that the Family Division needed to recognise the fundamental principle that a Company is a separate legal entity [in most cases to that of the husband] and that family lawyers cannot seek to include those assets which are legitimately owned by the Company within the divorce; even if, the Company is solely controlled by the husband.

So, why is this case important?

In its Judgment today, the Supreme Court supported this initial direction, reaffirming the principle that a corporate body has its own separate legal entity and emphasised that there are only limited circumstances where this does not apply - for instance, where a company has been created to evade an existing liability or legal obligation. However in this case, the court ruled that the 'most plausible inference' from the known facts was that each of the properties was held on trust for the husband. As such, the Court was able to order the transfer of the properties to the wife.

Unanimously, the Supreme Court allowed Mrs Prest's appeal and overturned the Court of Appeal's decision. In this instance they ordered him to hand over these assets.

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