UK: Stepping Around The Corporate Veil: Prest In Action

Last Updated: 14 January 2014
Article by Rebecca Piper

M v M [2013] EWHC 2534 (Fam)

Following a 3 year wait for the judgment of the Supreme Court in Prest v Petrodel Resources Limited [2013] UKSC 34 to be handed down, a record breaking judgment for financial provision following the breakdown of marriage has been made in the case of M v M. In this case the wife, Mrs M secured the sum of almost £54m from her former husband, whose assets (mostly properties) where largely held in complex corporate structures. As in Prest it was held that there these corporate structures were holding the assets on resulting and constructive trusts for the husband, Mr M, and so could be transferred directly to Mrs M, without the need to pierce the 'corporate veil'.

The facts

Mr and Mrs M, both Russian nationals, were married for 17 years and had two children. They first met in Russia in the factory in which they both worked, but during their relationship Mr M, taking advantage of the changes in the Russian free market, built up a successful business. Following their divorce in Russia in February 2009, Mrs M, who has been resident in England since August 2005, applied for financial relief under Part III of the Matrimonial and Family Proceedings Act 1984 (MCA).

Both children remained with their mother, and at the time of the application, one child was 15 and the other attending university.

The husband's wealth was estimated at approximately £107m, of which approximately £91.6m was made up of 11 commercial properties in Russia and the remainder comprising of 8 English properties, which were held (in simplified terms) as follows:

  1. Company A, owned by the husband's son from his first marriage, was the registered owner of 3 properties in London.
  2. Company B, a Cypriot company wholly-owned by the husband, was the registered owner of the husband's country home "Quinta Castle".
  3. Company C, registered in Nevis (an island in the Caribbean) and owned by Company B, was the registered owner of a London flat.
  4. Company D, also registered in Nevis and owned by Company B, was the registered owner of a flat, which was the husband's London home, and a garage.

The matrimonial home was the only asset not held in a company structure.

The Court was largely concerned with the 4 properties and the garage own by companies B, C and D (together "the Properties" and "the Companies").

The wife sought an order enabling her to receive the Properties plus a lump sum of £38m representing half the realised value of 11 Russian properties.

The question before the Court

The MCA allows for the Court, on the decree of divorce, to make an order that a party to the marriage transfer to the other party (or any child or for the benefit of a child) property to which the first mentioned party is entitled (either in possession or reversion). The question before the Court therefore, was whether the Properties, albeit legally owned by the Companies in complex structures, were beneficially held by Mr M on a resulting or constructive trust.

The legal basis of claim

As in Prest, Mrs M argued that since her husband had at all times retained the beneficial interest in the Properties held by the Companies, they were therefore matrimonial assets, and there was no need to pierce the corporate veil in order to transfer the Company assets to her. However, all the Companies resisted the wife's claim on the basis that they owned both the legal and beneficial interests in the Properties, so the wife could not make a claim for their transfer to her.

They further argued that the Properties were held by them outside the jurisdiction for well-recognised tax planning reasons, and that it had been a priority for the husband to have disposed of any interest he had in any of the Properties rather than retain it as if he had not done so he would fail to achieve the tax benefits sought. They submitted that it was inherently probable that a wealthy individual non-domiciled in the UK would hold his assets offshore for tax avoidance.

The judgment

The wife's application for financial provision was successful and, as in Prest, the Companies were found to be holding the Properties on resulting and constructive trusts for the husband, in this case on the following basis:

  1. The Judge found that Mr M did not place the properties in the company structures in order to achieve tax mitigation, the Judge therefore rejected the only evidence put forward to justify the Properties not being held beneficially for Mr M. In support of this finding, Mr M had shown throughout the proceedings that he had no respect for regulations and did not regard the payment of tax as something he need concern himself with.
  2. The Judge held that Mr M was a shadow Director of the Companies and "at all time the directing mind and will of each of the companies".
  3. The husband funded the purchased of all of the Properties owned by the Companies, at no time did any money go through the company bank accounts and the Properties did not appear as assets on any of the company accounts.
  4. The husband's actions in relation to the Properties were those of the beneficial owner. All of the properties in England were purchased for the domestic use of the family (or Mr M alone) free of consideration of rent to the Companies, and works were carried out on the properties without reference to the Companies.
  5. The Judge was highly critical of Mr M's failure to engage in the Court process and made inferences from the directors of the Companies failure to make proper disclosure, attend court or give evidence.

The Court ordered the transfer of the Properties to Mrs M, the release to Mrs M of Mr M's share of the balance of sale proceeds of the former martial home, a lump sum of £38 million and provision for child maintenance.

Comment

The facts of this case are highly unusual. Mr M went to extreme lengths to tie his assets up in highly complex corporate structures. He failed to engage in the Court process, ignoring Order after Order for disclosure, being in contempt of Court many times over. Whilst the result in this instance has been a success for the wife, the application of this case may be more limited than hoped. If assets are obtained for value in the ordinary course of business and this can be proven, the principles in Prest and M v M are unlikely to assist those spouses seeking provision under the MCA, save in relation to the marital home. However where spouses are taking deliberate steps to wrap assets up in company structures (whilst retaining control of those assets) in an attempt to keep them out of reach of their spouse then Prest and M v M will be persuasive authorities to assist in bringing such assets back in to the pot of marital assets for distribution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Rebecca Piper
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions