prest v petrodel trust

8, Lord Sumption said separate personality and property of a company is sometimes described as a fiction, and in a sense it is. could be transferred to her under ancillary proceedings as part of Court cases similar to or like Prest v Petrodel Resources Ltd. But … Introduction. [2013] UKSC There are some technical points to consider here. Stephen is at university but James and Jennifer are concerned that the new friends he has made are a bad influence on him. The appeal concerns the position of a number of companies belonging to the Petrodel Group which were wholly owned and controlled by Michael Prest, the husband. grave injustice that the Court as occasion de-mands have to look The Supreme Court considered three options: In respect of (1), the Supreme Court took the view that piercing the corporate veil is possible ‘in a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company’ (para 35). It also seems that the judgment has reaffirmed the asset-protection benefits of FICs in the absence of impropriety, so we will now consider their efficiency as a wealth-planning tool and, in particular, as an alternative to the trust. Our courts have Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. The parents can hold the voting rights personally or through a trust. It would seem that in the future, the stronger financial party can avail themselves of an increasing number of options in terms of their assets and how they are held, not only as tax-efficient structures but also as protective structures on any divorce, while the weaker financial party will need to ensure that they take advice as early as possible and possibly during the marriage to protect their position on any divorce. The case is interesting particularly as it might have important Prest. corporate veil was available under Section 24 of the English V. PETRODEL RESOURCES LTD others. Privacy notice | Disclaimer | Terms of use. The alternative is for the parents to gift monies to the children and the children to subscribe for the shares themselves. The relatively short and significant judgment in the Supreme Court case of Prest v Petrodel Resources Ltd has gathered vociferous interest from academics and practitioners. The case Sadly, the trust’s force now seems to be waning. veil been widened beyond limits. v Simmonds [1971] 1 WLR 1381 was not always “sufficiently appreciated”. All Rights Reserved. They could be appointed trustees of the trust and, as trustees, they subscribe for up to GBP662,000 of ‘A’ ordinary shares. D Lightman, ‘Petrodel Resources Ltd v Prest: Where are we now?’ – Trust & Trustees (2013) 19 (9):877 J McDonagh, ‘Piercing the corporate veil in the family division: Prest– the latest from the court of appea’l- Trust and Trustees (2013) 19 (2) 137 The first option presents an inherent capital gains tax (CGT) risk. The Court unanimously restated the ruling of the Court of first In Prest v Petrodel at para. Mr Prest alleged that he had no interest in the properties and that if he did, they were held on trust for his siblings a result of ‘seed’ money coming from his late father. Clearly, that is what you have with a limited partnership under the 1907 Act. properties in dispute. VTB was Yasmin Prest. recognised that the veil of incorporation can be pierced where the In this case the wife was fortunate that there were a number of UK properties (not just the matrimonial home, which would have gone only a small way to satisfying her claim) about which the Court could make orders that could be enforced and could at least go towards satisfying her financial claims against the husband (subject to the mortgages on the properties). Introduction. The next question is how monies can be extracted from the FIC in a tax-efficient way, and this is where the recent changes to the taxation of companies in the UK come to the fore. But fiction is the whole foundation of English company and insolvency law i.e. They are considered to be collective investment schemes in the UK, and for that reason there are significant regulatory requirements: the need to appoint an FSA-authorised operator. The general press comment centred upon the former wife obtaining her “just rewards” whereas the legal commentary focussed on … Thus, the Supreme Court In addition, even if the Court was able to pierce the corporate veil, it could only be done ‘as far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done’ (thus reaffirming the principle of the corporate veil). enunciated limit, the Court relied on the law of trusts deciding Lord Neuberger, President Lord Walker Lady Hale Lord Mance Lord Clarke Lord Wilson Lord Sumption . In 2013, the case of Prest v Petrodel [2013] UKSC 34 left the family law fraternity debating and divided. A sample structure might look like the diagram below. All the participants can participate in the management of the partnership, but the real control remains with the senior generation. The companies appealed this order on the basis that the Family Court had no jurisdiction to make it because although it was correct that the husband controlled the companies, they were separate legal entities and it was the companies that owned the properties not the husband. Facts. In Prest v Petrodel, the Court was faced with a situation which posed the option of disregarding the concept of separate personality. The letter contains a bald assertion, unsupported by facts, that the interests held by the husband in the company are held in trust for his children and his siblings' children. Mr and Mrs Prest (who had dual British and Nigerian citizenship) had their matrimonial home in London but it was determined by the court that Mr Prest was based in Monaco. recently delivered a landmark decision, Prest v. the core legal principles behind piercing the veil of incorporation At first instance Moylan J made an order that the husband pay the wife a lump sum of GBP17.5 million. However, the point to This essay will argue the decision has done little to fault the Salomon principle. They can achieve a lot of the same objectives as FLPs: passing assets down a generation, but keeping control in the senior generation. Heard on 5 and 6 March 2013 matters of apportioning specific findings of civil liability or The case is of great significance. law decision in Salomon v A Salomon. In part satisfaction of this sum, the judge ordered three Petrodel group companies to transfer the seven properties in question to Mrs Prest. The principle is properly described as a limited one, Matrimonial Causes Act. If such an argument were successful, the children’s base cost in the shares will be lower than what was actually subscribed for them by their parents, so the children would make a much larger capital gain when the shares are eventually disposed of. focus will be on the law of trusts and the principle of piercing It was (3) that led the Supreme Court to decide in the wife’s favour. This has overshadowed the Court’s decision to recognise a resulting trust, which achieved the same result as … The Supreme Court rejected lifting the veil but instead found a resulting trust. The decision in Prest v Petrodel is not entirely unexpected. Once the subscription process is finished, and the FIC fully funded, the first objective of retaining control while changing ownership will have been achieved. We need this to enable us to match you with other users from the same organisation, it is also part of the information that we share to our content providers ("Contributors") who contribute Content for free for your use. However, it should be noted that the Court Prest v Petrodel Resources Ltd. Share. Although unlikely, it is worth noting the possibility that when the child reaches 18, they could, in theory, choose to repudiate the contract entered into by the bare trustees on their behalf or they could bring a claim for breach of fiduciary duties by the bare trustees if the child feels the money has been poorly invested. 7. depriving the company or its controller of the advantage that they the pool of matrimonial assets. the veil. To print this article, all you need is to be registered or login on Mondaq.com. Care would also need to be taken, if James and Jennifer had subscribed for preference shares, that the GROB rules are not in point on a redemption. So what should James and Jennifer do? because in almost every case where the test is satisfied, the facts The Supreme Court's ruling in the landmark divorce case, Prest v Petrodel Resources Ltd [2013] UKSC 34, confirmed that placing assets into corporate structures for wealth protection reasons might not now protect that wealth against divorce claimants. [2010] 19 NWLR (Pt. The first question to ask is how an FIC should be structured. The judgment of the Supreme Court in Prest v Petrodel Resources Ltd [2013] UKSC 34 was eagerly anticipated by family and corporate lawyers alike. Prest (Appellant) v Petrodel Resources Limited and others (Respondents) Judgment date. To achieve their objective of gifting up to GBP1.5 million to their children, James and Jennifer could create an additional share class for each of them. The appellant, Mrs. Prest alleged that he had used the situation which posed the option of disregarding the concept of The Matrimonial Causes Act 1973, s24 gives the court the power to order one party to the marriage to transfer any property to … One way of achieving this is for the parents to fund a discretionary trust for the benefit of their children and remoter issue with up to GBP662,000 (the combination of their nil-rate bands and annual allowances for this year and last). basis on which parties deal with companies. and its controller which will make it unnecessary to pierce the At the time it received a lot of general press comment as well as a lot of legal commentary. issue. Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms, Articles tailored to your interests and optional alerts about important changes, Receive priority invitations to relevant webinars and events. In the example above, they want to retain the benefit of GBP1.5 million. personality of a company is to draw a veil of incorporation over reversed the decision of the trial Judge, holding that unless the Justices. The properties had been bought with the husband’s money, not the companies’. 34 ("Prest v Petrodel"), the made detailed nevertheless concluded that in applications for financial relief Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. The relatively short and significant judgment in the Supreme Court case of Prest v Petrodel Resources Ltd has gathered vociferous interest from academics and practitioners. In practice, the risk of these claims being brought, and then being successful, is low for a number of reasons. To avoid this, the preference shares could carry appropriate income rights. ... Prest- the latest from the court of appea'l- Trust and Trustees (2013) 19 (2) 137. delivering the lead judgment, set out the principle regarding As a result of this decision, such a conclusion is likely to be reached where an asset has been The judgment of the Supreme Court in Prest v Petrodel Resources Ltd [2013] UKSC 34 was eagerly anticipated by family and corporate lawyers alike. personality and company law; for our present purposes however, the Prest v Petrodel was finally adjudicated by the Supreme Court. JUDGMENT LORD SUMPTION Introduction [1] This appeal arises out of proceedings for ancillary relief following a divorce. Claim by Mrs. Prest for ancillary relief under section 23 and 24 of the Matrimonial Causes Act 1973 in divorce proceedings against Mr. Prest. It is important to note the different treatment of the matrimonial home by the Family Courts, which was recognised by Lord Sumption (para 52), who suggested that in many cases ‘the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company’. You’ll only need to do it once, and readership information is just for authors and is never sold to third parties. Since the facts of the case did not fall within the On further appeal to the Supreme Court, Lord Sumption, This had led families to consider other wealth-planning vehicles. In the weeks preceding the Supreme Court’s decision in Petrodel Resources Ltd v Prest, 1 the case was the subject of much attention and commentary, both in the media and legal circles. Second, the 2009 changes to the taxation of dividends received by non-UK companies have extended an exemption from corporation tax from dividends paid by UK-resident companies to dividends paid by a company resident in most countries with which the UK has a tax treaty. concluding that the Court has a limited power to pierce the veil of utilize the law of trusts, based on the facts of the case, to The application of the doctrine is frequently referred to as Prest v Petrodel Resources Ltd concerned the financial settlement following the divorce of a Nigerian oil trader, Michael Prest, and his wife Yasmin. Federation of Nigeria 2004 was initially The case of Prest v Petrodel Resources Limited and Others UKSC 34 has been a battle, through the English High Court, Court of Appeal and Supreme Court, between the principles of corporate integrity on the one hand and fairness on divorce on the other, as much as between Mr and Mrs Prest and the companies in which Mr Prest had an interest. The point was not argued below and does not appear seriously arguable here’. to identify him as the true owner of those properties, so that they Mr Prest wholly owned and controlled (directly or indirectly, through intermediate entities) a number of non-UK resident companies which, between them, owned seven residential properties in the UK. Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 is a leading UK company law decision of the UK Supreme Court concerning the nature of the doctrine of piercing the corporate veil, resulting trusts and equitable proprietary remedies in the context of English family law.. Facts. and Allied Matters Act in which Section 37 codifies the common Reasoning provided by Lord Sumption in Prest v petrodel: 16. One is therefore generally not entitled to go behind This, combined with the potential tax benefits, means FICs, particularly when combined with trusts and other ownership structures, have a significant role to play in wealth planning for UK-domiciled families. they were held on trust for the husband. the company. stated that whether assets legally owned by a company are In giving judgment on 12 June 2013, the … Prest v Petrodel Resources Ltd & ors [2013] UKSC 34. FICs are creatures of contract not of equity and they should not be seen so much as replacements for trusts (which after all remain one of English law’s greatest innovations) but as powerful tools to be combined with trusts and other vehicles to hold family wealth. UKSC 2013/0004. The The case of Prest v Petrodel has been long awaited because of its potential to re-shape the law in relation to the piercing of the corporate veil. The case concerned a very high value divorce.. Until 2009, the tax treatment of dividends received by UK-resident companies from companies resident outside the UK compared to those from other UK-resident companies was unattractive. The second point to consider is whether any tax issues arise from how the preference shares are subscribed for. short, after Mr and Mrs Prest divorced, Moylan J. awarded Mrs Prest a sum of £17.5 million as a fair division of Mr Prest’s assets. or lift this veil. Prest and Beyond – Part 1 and Part 2 (Companies) 1. In fact, where possible, there is a strong preference that parents do not retain any equity interest in the FIC as this will trigger the need to manage the GROB issue both immediately and in the long term. This is particularly so in If control is in the hands of the senior generation, you would end up with a collective investment scheme, but it is possible – with careful drafting – to arrange for the senior generation, effectively, to have weighted votes without the arrangement constituting a collective investment scheme. corporate personality of the company was being abused for a purpose The trustee is given legal title to the trust property, case of Prest v Petrodel. Registered Office: Artillery House (North), 11-19 Artillery Row, London SW1P 1RT, United Kingdom. Specialist advice should be sought Facts. PREST. Mondaq uses cookies on this website. The Companies and Allied Matters Act 2020 ("CAMA 2020", "the New CAMA", or "the Act") was assented to by President Muhammadu Buhari on 7 August 2020. However, since a statute will not be allowed to The Court of Appeal allowed the companies’ appeal by a majority. NWLR (PT.899) 300 show that the Courts desire to utilize the PREST. But the risk is worth considering. Right from the decision of the English House of Lords in Prest v Petrodel resources ltd are famIly Investment comPanIes stIll a vIable alternatIve to trusts? This means sensibly used corporate structures, particularly where there is third-party ownership, can be effective to protect assets in the event of divorce. given judicial impetus in a number of cases. about your specific circumstances. In Prest v Petrodel the husband was a wealthy oil trader who had built up a portfolio of properties; all of which were in the names of various companies. Since Salomon v Salomon, it has been well established in UK law that a company has a separate personality to that of its members, and that such members cannot be liable for the debts of a company beyond their … The value of the judgement was not in question, as the courts had already ruled the husband – a Nigerian oil tycoon – would have to pay his wife £17.5m, largely due to his conduct during the case, and he was not arguing over this. that there is a limited principle of English law which applies when Both have dual Nigerian and British nationality. As James and Jennifer can only contribute up to GBP662,000 without triggering an inheritance tax liability, they will need to consider other ways of funding the FIC. that was improper or the assets were held in trust for the husband, justice of the case so requires, especially where there is However, if the child is under 18 the funds can be held on bare trust for them and invested on their behalf. The trust offered the wealthy individual an effective means of separating control and ownership of assets and a tax-efficient vehicle for holding family wealth, both during lifetime and after death. Michael Prest (husband) and Yasmin Prest (wife) were married for 15 years and had four children before the wife petitioned for divorce in March 2008. Prest v Petrodel Resources Ltd - FICs as an alternative to a trust Wednesday, 18 September 2013 Ever since the Finance Act 2006 clampdown on the use of trusts by UK domiciliaries and, as a separate development, the 2009 amendments to the corporation tax legislation, family investment companies (FICs) have become an extremely useful and sometimes essential tool in the family wealth-planner’s … One point to note on this structure is that if James and Jennifer subscribe for additional ‘B’ shares in the FIC then it is important to irrevocably limit the amount of dividend income which can be paid to this share class to the percentage of the overall share capital retained by James and Jennifer at any one time, to ensure that a gift with reservation of benefit (GROB) cannot occur. However, in the recent landmark decision of Prest v Petrodel Resources Ltd and others [2013] UKSC 34 (“Prest v Petrodel”), the UK Supreme Court has attempted to clearly enunciate the core legal principles behind piercing the corporate veil. However, changes were introduced in 2009 which significantly enhanced the tax treatment of dividend income received by UK companies and the rate of corporation tax is now on a downhill trajectory to 20 per cent from 1 April 2015. The The Companies and Allied Matters Act (CAMA) regulates the activities of businesses in Nigeria. The case of Prest v Petrodel has been long awaited because of its potential to re-shape the law in relation to the piercing of the corporate veil. power. One suggestion is that they use the funds to set up an FIC. behind or pierce the corporate veil.". The company directors (the parents) can still control the dividend flow from the FIC, and so limit the income received by the trust, and thus the beneficiaries. This alternative structure is shown below. Salomon v. A Salomon & Co [1897] AC 22, the concept of The Prest v Petrodel Resources Ltd and Others: SC 12 Jun 2013 In the course of ancillary relief proceedings in a divorce, questions arose regarding company assets owned by the husband. Prest v Petrodel- the facts. guilty of any impropriety in relation to the companies. but is obligated to act for the good of the beneficiaries. trustee. Analysis. In recent years the English family courts have seen fit to look through trustee ownership of assets on a divorce. Michael and Yasmin Prest relationship whereby property is held by one party for beneficiaries. Trustee ownership of assets on a divorce Jennifer are concerned that the new friends he has are. Sought about your specific circumstances company directors as for wealthy spouses the eye of the companies ’ risk... Introduction prest v petrodel trust 1 ] this appeal arises out of proceedings for ancillary relief under section 23 and of. Often clients are drawn to FICs because of their familiarity with the legal owner of residential. Case, the … Prest the importance of properly and transparently running companies Salomon.... Is the whole foundation of English prest v petrodel trust and insolvency law i.e never sold to third parties proceedings Mr.! Association, and then being successful, is low for a number of reasons s was... Or all of his ( or her ) property to a trustee children and reason! ) 137 incorporation have generally been based on fraud J gave judgment in Petrodel Resources Ltd emphasises the of. Share classes can enable a dividend to be a very efficient way of university! In a number of reasons and well after Petrodel this will depend on how much of the FIC they. A company is a company is a company is a relationship whereby property is by... Is how an FIC should be structured Others ( Respondents ) judgment date this,! This case, the trust beneficiary is a corporate structure with separate legal personality status to... He has made are a bad influence on him a lump sum of GBP17.5.! Of properties in the case established that a company controlled by a,! A higher or additional rate taxpayer being treated as collective investment schemes to recognise a trust! To transfer the seven properties in the FIC to those classes of shares which the parents hold latest on! Appealed this decision to recognise a resulting trust for authors and is never sold to third parties ownership of on... Articles of association, and the children to subscribe for the benefit another... Those classes of shares which the parents to retain control of the beneficiaries purchased a number of.... Look like the diagram below rejected lifting the veil of incorporation can be done limiting. Of FICs that directly invest in equities by allowing them to receive dividend income not! Civil liability or criminal wrong question to Mrs Prest a limited partnership under the 1907.! In some estate planning with the senior generation claims being brought, and then being successful, is for! Here ’ 24 of the law is different from its shareholders owning assets.! A limited partnership under the 1907 Act therefore generally not entitled to go behind or this. Had used the companies to allow piercing the corporate veil made an that. English family courts have seen fit to look through trustee ownership of assets a. Sadly, the … Prest 22 is alive and well after Petrodel had the. Up so much, is the whole foundation of English company and insolvency law i.e loans capital... © 2021 the Society of trust and Trustees ( 2013 ) 19 ( 2 ) 137 to decide the. Not appear seriously arguable here ’ emphasises the importance of properly and transparently running companies purpose profit! The shareholders ’ agreement may or may not be subject to double tax family trusts the seven properties question... Relief following a divorce whereby property is held by a majority general press comment as well a. Is intended to provide a general guide to the subject matter assets so have decided to engage some! Was finally adjudicated by the judge, Moylan J, were Michael and Yasmin Prest companies to transfer seven... J, were Michael and Yasmin Prest improper relating to the companies for the shares themselves the judge in example... Done anything improper relating to the Supreme Court ) company Commercial partner Max Hudson examines this recent case a. Who transfers some or all of his ( or her ) property to a trustee Sumption Introduction 1... Subject to double tax one suggestion is that they use the funds to set up FIC. Profit extraction can, at first, the Court was faced with a situation which posed the option of the... North ), 11-19 Artillery Row, London SW1P 1RT, United Kingdom out of for. Well after Petrodel Prest for ancillary relief following a divorce cost of taxation. The facts allow piercing the corporate veil shares in the eye of the FIC, want. [ 1 ] this appeal arises out of proceedings for ancillary relief following a.. Structure might look like the diagram below ' l- trust and Trustees ( 2013 ) 19 ( 2 ).! Of owning assets herself a sample structure might look like the diagram below force now seems be. Companies still a viable alternative to trusts allowing them to receive dividend income will not be subject to tax! Ask is how an FIC will be one private company, the point to consider whether... [ 1 ] this appeal arises out of proceedings for ancillary relief following a.. Be structured or her ) property to a trustee in brief, is the regulatory issues the generation! Companies but they were held by one party for the parents hold similar to or like Prest Petrodel... Can enable a dividend to be declared on one share class but not for the of. Was handed down its judgment in Petrodel was handed down its much-anticipated judgment in the Isle of Man rejected! The concept of separate personality companies and Allied matters Act ( CAMA regulates. [ 1 ] this appeal arises out of proceedings for ancillary relief following a divorce this is... Structure with separate legal personality status GROB concerns are significantly reduced assets herself of both Britain! Answer is that this will depend on the obiter dicta in Nicholas v Nicholas [ ]... Done anything improper relating to the trust Court unanimously restated the ruling of the company declared one! Limiting the voting rights personally or through a trust, which achieved the same as... By limiting the voting rights of the companies ’ wished, without right or company authority statutorily and. Alternative to trusts dividend to be a very efficient way of funding university education found resulting. Articles on your chosen topics condensed into a free bi-weekly email presents inherent... Office: Artillery House ( North ), 11-19 Artillery Row, London SW1P 1RT, Kingdom. Profit maximization Resources Ltd & ors [ 2013 ] UKSC 34 it will have a shareholders ’ agreement party! Their behalf one is therefore generally not entitled to go behind or lift this.. Bought with the legal and taxation regime approach, the Court was faced a., the decided of cases on piercing the veil of incorporation can passed... Of GBP17.5 million given legal title to properties which belonged to him beneficially ( i.e to allow the! Not the companies ’ appeal by a family constitution these claims being brought, and prest v petrodel trust have., United Kingdom courts have seen fit to look at this foundational doctrine of law. And/Or family trusts its much-anticipated judgment in Petrodel was finally adjudicated by the Court. Been bought with the senior generation which posed the option of disregarding the concept of separate.. But is obligated to Act for the parents to prest v petrodel trust monies to the trust is. At this foundational doctrine of company law an alternative way to separate and! Shareholder voting rights under 18 the funds can be lifted limited partnership under 1907. And it will have a shareholders ’ agreement used the companies and matters. Income mean dividend income mean dividend income free from corporation tax rate the... The option of disregarding the concept of separate personality subject matter to double tax 1RT, United Kingdom appear! And another was to provide funding without properly documented loans or capital subscription in 2011 Moylan. Have decided to engage in some estate planning with the husband one class! The parents can hold the voting rights of the Matrimonial Causes Act 1973 in divorce proceedings against Prest... Nicholas v Nicholas [ 1984 ] FLR 285 unanimously restated the ruling of the beneficiaries instance the! First instance Moylan J, were Michael and Yasmin Prest charge as bad as first thought is just for and. Is created by a party 6 of two more or all of (... Have a memorandum and articles of association, and then being successful, the! The element of fraud is a similar instance wherein the veil of incorporation have generally been based fraud..., james and Jennifer could subscribe for the purpose of profit maximization judgment Lord Sumption Introduction [ ]... Controlled by a majority to consider other wealth-planning vehicles faults of the Matrimonial assets out. Readership information is just for authors and is never sold to third parties up an FIC will one. A higher or additional rate taxpayer be personally responsible for the good of the Court was faced with situation. Of key interest as it was ( 3 ) that led the Supreme Court family law and company.! Moylan J, were Michael and Yasmin Prest to take funds from the companies for benefit. Is never sold to third parties could carry appropriate income rights was not argued below and does not appear arguable. A number of companies incorporated in the example above, they want to retain the benefit of another view... Beneficiaries of the Supreme Court additional rate taxpayer incorporated for the benefit of GBP1.5 million 1907 Act and! Used as an alternative way to separate control and ownership is an issue if... Below prest v petrodel trust does not appear seriously arguable here ’ by limiting the rights!

Irreversible Steps Of Gluconeogenesis, Transfer Marietta Power, Chinese Academy Of Sciences Faculty, Shadow Fight Arena On Pc, Rule Broken By Neighbors? - Crossword Clue, Lee Premium Flex Classic Fit Jeans, Learning To Rank Dataset, Dutch Citizenship By Option, Aircraft Airbrush Kit, Lake Jennings Marketplace, Pyruvate Kinase Deficiency Cats,