Extracting assets out of a company in a family law case

November 25th, 2014

One of the very significant challenges facing family law judges occurs where one spouse is seeking either lump sum payments or transfer of assets in circumstances where the most significant asset by the parties are shares in a company. The Courts have tended either make a lump sum order in favour of the non-owning spouse or a direction in relation to the shares held in the company.

In a U.K. decision last year, which was decided by a seven-person Supreme Court in the case of Prest and Petrodel, the Supreme Court upheld a decision of the High Court to transfer properties worth £17.5 million to the wife in circumstances where these properties were owned by the company and not the husband. The grounds for this decision was that the Court held that the husband was the beneficial owner of the assets in that he had provided the funds to purchase them and that he had also been in the position of control where he could take funds from the Company whenever he decided to do so and there seemed to be little Company governance or oversight in relation to his actions in this regard.

In this case, Mr. Prest in his defence relied on Section 24 of the Matrimonial Causes Act 1973 which required that for a Court to be able to order the transfer of a property , Mr. Prest had to be ‘entitled’ to the properties held by his Company. He contended that he was not entitled to the properties. In the High Court, Moylan J held that had if Mr. Prest had the ability to transfer the properties in practice, then he was ‘entitled’ to them under Section 24 (1)(a) of the 1973 act.

Interestingly, the Company appealed the decision and the decision was overturned by the Court of appeal but the matter was appealed again to the Supreme Court and the Supreme Court unanimously overturned the court of appeal’s decision and held that Mr. Prest beneficially owned the assets of the Petrodel Resources Limited company under a resulting trust because he contributed to their purchase price.

The Supreme Court did not decide the decision on the basis that it was entitled to ‘pierce the corporate veil’ i.e. because Mr. Prest had in any way acted improperly. It upheld the decision of Moylan J in the High Court and determined that by reason of the fact that Mr. Prest had been ‘entitled’ to the assets of his companies under a resulting trust, then the Court had jurisdiction to transfer half the value of the properties to Mrs Prest.
The Court went on to find that there had been no evidence that Mr. Prest had set up the company to avoid any obligations in these divorce proceedings so that there was no grounds for piercing the corporate veil.

It went on to state that the courts did not have power to order Mr. Prest to transfer property that he was not entitled to by law but in this case, it decided that by virtue of the fact he was entitled to these assets under a resulting trust, it could make an order transferring the assets.

The courts in Ireland have been reluctant to tread on this territory and make orders in relation to assets residing in a company. Having said that, in a recent case of Q v Q the husband was objecting to the discovery of company documentation, the High Court directed discovery in circumstances where Mr. Justice Keane held that a court in a family law case has a quasi-inquisitorial role and that in circumstances where the husband had been able to receive any documentation or information he needed, it was not plausible for him to argue that the documents required were beyond his power to hand over.

While this case demonstrates that a company is not immune from an involvement in family law cases in Ireland, it is a different matter for the Courts to direct the transfer of assets. However, there seems there is no reason why the Courts in Ireland could not follow the principle where the owner of a Company provides money to the Company to purchase assets, those assets would be held by the Company on behalf of the shareholder on a resulting trust and in those circumstances could be the subject of an order of transfer in a family law case.

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