'Corporate veil' cast aside as UK court rules on divorce settlement
UK court ruling that a spouse can lay claim to company assets in reaching a settlement is likely to have a significant impact in HK
A landmark ruling in Britain, in which the Supreme Court found that company assets held by a spouse can be handed over as part of settlement claims, is likely to affect divorce proceedings in Hong Kong.
Lawyers say the decision could make it harder for a spouse to hide personal assets by putting them behind a corporate structure - the "corporate veil".
On Wednesday, the seven-member court unanimously rejected claims by Michael Prest that he could not hand over properties controlled by his company to his former wife as part of a £17.5 million (HK$213 million) divorce settlement because he was tens of millions of pounds in debt.
He is the founder and controller of the Nigerian energy group Petrodel Resources, registered in the Isle of Man. The court ruled that the properties, initially represented as assets of the offshore company, were actually held in trust for the husband.
In the ruling, Lord Justice Sumption said Michael Prest had "deliberately sought to conceal [that the properties were held for him] in his evidence and failed to comply with court orders with particular regard to disclosing evidence … The court inferred that the reason for the companies' failure to co-operate was to protect the properties, which suggested that proper disclosure would reveal them to [be] beneficially owned by the husband".
In Hong Kong, Sharon Ser, a senior regional partner and head of Withers' Family Practice, Asia, said the decision had significant implications for Hong Kong.
"Traditionally, so many of us here acquire assets in company names and people even buy their own matrimonial homes in the name of a company," Ser said.
"It's very much the culture here. But in this case, the verdict ruled against the commonly held [view] that a company is a completely separate legal identity and should not be involved in matrimonial proceedings."
For more than a century, British law has deemed that a company is a separate legal entity from its shareholders, and that company assets cannot be raided to recover debts owed by them.
Sandra Davies, head of family law at British law firm Mishcon de Reya, said that although the court ruled the assets be transferred to Yasmin Prest, it did not set a legal precedent on access to corporate assets as the property was held in trust for Michael Prest. "There has to be a situation where the husband has done something to evade, frustrate, put the company beyond his control with intention."
Additional reporting by Reuters
Recently costly divorce cases in Hong Kong
In March, the divorced wife of a top engineer was awarded HK$572.4 million after a court added HK$140.4 million to the original settlement. The larger sum was given in light of their 41-year marriage and the wife's non-monetary contribution to their union, the judgment said. Otto Poon Lok-to's former wife, Kay Kan Lai-kwan, 73, was originally awarded HK$432 million. Dissatisfied, she went to the Court of Appeal, seeking HK$832.5 million.
In November 2012, Wu Yajun, the multibillionaire chairwoman of Hong Kong-listed mainland developer Longfor Properties, lost her crown as China's richest woman after giving up part of her shareholding in her divorce from husband Cai Kui. Her net worth slumped to US$4.2 billion from US$7.3 billion.
- In December 2011, solicitor Florence Tsang Chiu-wing was awarded HK$1.2 billion after the High Court ruled she was entitled to maintain the lifestyle to which she had become accustomed. It was later raised to HK$1.4 billion. Her ex-husband is Samathur Li Kin-kan, son of property tycoon Samuel Lee Tak-yee. The award has gone to appeal and is scheduled to be heard in October.