Most Read Contributor in New Zealand, September 2016
Some say that limited liability companies are the spark plugs
(or their silicon equivalent) of western capitalism. Others say
that treating a company as a separate legal person (as the famous
– to lawyers – case of Salomon decided in
1897) is a damnable fiction when, as an old saying has it, it has
no body to kick and no soul to harm.
An important decision last month by the UK's highest court
also tells us that a company is not expected to have a residential
house to live in.
The case of Prest v Petrodel Resources Limited 
UKSC 34 has substantial international intrigue. Mr and Mrs Prest
are citizens of both Great Britain and Nigeria. Mr Prest primarily
resides in Monaco. He owns a number of companies incorporated in
the Isle of Man. What those companies do is something of a mystery.
Something to do with oil maybe, but one could charitably say that
Mr Prest kept his cards close to his chest.
Mr and Mrs Prest divorced and so began the contest over division
of assets. Mr Prest did not participate in that contest willingly.
In fact, Lord Sumption described his conduct as "characterised
by persistent obstruction, obfuscation and deceit, and a
contumelious refusal to comply with rules of court and specific
The first instance Judge found that Mr Prest's fortune in
his various companies was worth around £37.5m. The issue was
whether the Judge could order those companies to transfer some of
their assets to Mrs Prest to satisfy the Judge's determination
that Mrs Prest was entitled to a £17.5m lump sum payment. The
Judge decided that he could use a provision of the UK matrimonial
property legislation effectively to pierce the corporate veil and
require Mr Prest's companies to transfer their assets to Mrs
The Court of Appeal strongly disagreed and held that this
(relatively common) practice of the Family Division of the High
Court "must now cease" as it was "an approach to
company owned assets in ancillary relief applications which amounts
almost to a separate system of legal rules unaffected by the
relevant principles of English property and company law."
To the Supremes then to sort this issue out. Lord Sumption
adopted the starting point in Lord Keith's speech in the 1978
case of Woolfson that "it is appropriate to pierce
the corporate veil only where special circumstances exist
indicating that it is a mere façade concealing the true
facts" and then tested this observation in a thorough review
of English authorities.
His Lordship then set out what he considers the rule to be
regarding piercing the corporate veil (at ):
I consider that there is a
limited principle of English law which applies when a person is
under an existing legal obligation or liability or subject to an
existing legal restriction which he deliberately evades or whose
enforcement he deliberately frustrates by interposing a company
under his control. The court may then pierce the corporate veil for
the purpose, and only for the purpose, of depriving the company or
its controller of the advantage that they would otherwise have
obtained by the company's separate legal personality. The
principle is properly described as a limited one, because in almost
every case where the test is satisfied, the facts will in practice
disclose a legal relationship between the company and its
controller which will make it unnecessary to pierce the corporate
And having revealed the law relating to the corporate veil, His
Lordship then proceeded, as only judges can do, to decide the case
on different grounds, by confirming that on the facts Mr Prest was
the beneficial owner of his companies' assets and therefore
there was no need to pierce the corporate veil in any event. Lord
Sumption also observed that where a company holds property
primarily for the purposes of providing a matrimonial home, the
facts are quite likely to justify an inference that the property
was held on trust for the spouse who owned and controlled the
The other four law Lords agreed with Lord Sumption but proceeded
to engage in an intellectually stimulating debate over whether the
doctrine of piercing the corporate veil is a doctrine at all or has
any value to the law since it is so seldom actually invoked. They
agreed to keep it around – just in case.
The lessons for New Zealand are that using corporate structures
to evade legal responsibilities or conceal assets, especially in a
matrimonial context, and even more especially for the matrimonial
home, will not be permitted. And for the legal romantics, it will
be comforting to know that Salomon is not dead, even if the
judicial needle remains ready to pierce that corporate veil in the
yet to be revealed situation where it is appropriate.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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The Hon'ble High Court of Bombay has held that where a Scheme of Amalgamation is executed between two companies registered in two different states [...], then the said two orders are two independent instruments.
Lawyers are pretty good at figuring it out quietly and amicably among themselves, without recourse to a public courtroom.
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