The judgement of Petrodel v Prest: what impact will it have?

There has grown up over a number of years a belief by some practitioners in the family division that the family courts have power to treat assets which were owned in family companies somewhat differently than judges were able to do in other court proceedings.

In this case, Mr and Mrs Prest had enjoyed a long marriage. Mr Prest didn’t co-operate with the courts when they divorced, but the court reached the conclusion that he had wealth amounting to about £37 million.

Many of the assets of the marriage were abroad, but there existed a company which owned 7 valuable English properties. The judge who first heard the case ordered the company to transfer those properties to the wife. The company appealed and the Court of Appeal reversed that decision.

This was notwithstanding that the court had found that Mr Prest was the only effective shareholder in the company and that he exercised sole control over the company.

In the Supreme Court, it was made very clear that there was no distinction between family law and other areas of law. And it was wholly improper in normal circumstances for a family court to think that it had the power to order companies which were wholly owned by one of the parties to transfer assets from that company to the other spouse.

But the court decided that there were exceptions to this rule which essentially are in circumstances where a company has been created to hold assets so as to hide those assets from a judgement that has already been made. Or, as in this case, where the court decided that the company was holding the assets on behalf of the husband rather than as true company assets.

So, what difference will this make to anything? Probably not a lot.

Courts have powers to transfer shares in a company from one spouse to another and that is not affected. The court has power to order the husband to pay to the wife a capital sum even though he might not have that amount of money in his savings.

The husband would then have a choice of selling company assets and drawing monies from the company to satisfy that judgement. Or if he doesn’t pay, the wife can take enforcement proceedings against the husband which would eventually lead to his bankruptcy, the company being wound up, the assets being sold and the wife getting her money.

In reality, this case affects those wealthy people who very often have companies that are based abroad, don’t necessarily live here permanently and use companies which operate in the UK to buy assets, including their homes.

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