Prest divorce case clarifies limits of a corporate holding of assets in Hong Kong
Lawyer Stacey Devoy of Withers explains a landmark case that clarified the extent to which a corporate structure can protect assets
When Mr Prest, a successful oil trader, and his wife of 15 years divorced, the High Court in London ordered that Mr Prest pay Mrs Prest a lump sum of £17.5 million (HK$210 million). Mr Prest did not pay.
He claimed not to have the money. He said valuable assets which the wife had alleged were his property were actually owned by the Petrodel group of companies. Accordingly, the assets were protected behind the "corporate veil".
Mr Prest controlled the Petrodel group. The court held such control amounted to "effective ownership" of the companies such that Mr Prest was "entitled" to the companies' assets.
British matrimonial legislation (the provisions of which are mirrored here in Hong Kong) empower the court to make orders affecting property to which a party is "entitled" and so the court ordered that Petrodel's assets be transferred to Mrs Prest to partly satisfy her financial award.
The Court of Appeal said this was wrong. "Control" of a company does not equate to ownership of the company's assets, which remain shielded behind the corporate identity. That shield can be penetrated only when fraud can be established. This long-established principle of corporate law applies equally in all courts, even the family court. Accordingly, the Court of Appeal concluded Mrs Prest could not have Petrodel's assets.
