Sadly, the trust’s force now seems to be waning. 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. requiring it to discount the separate legal personality and reveal
Prest v Petrodel Resources Ltd & Others [2013] UKSC 34 Introduction. Petrodel Resources Ltd and Others v Prest and Others: CA 26 Oct 2012. Once the subscription process is finished, and the FIC fully funded, the first objective of retaining control while changing ownership will have been achieved. The terms of those shares could be drafted with or without income rights (although see below) and, more importantly, can be drafted to delay any redemption rights until the children are older. guide to the subject matter. 7. Contrary to what it might seem, the doctrine of separate legal
corporate veil.". The Court unanimously restated the ruling of the Court of first
Right from the decision of the English House of Lords in
The judgment of the Supreme Court in Petrodel was handed down on 12 June 2013. 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. Salomon v A Salomon and Co Ltd [1897] AC 22 is alive and well after Petrodel. The majority of commentary in the wake of Prest v. Petrodel Resources Ltd has focused on the Supreme Court’s discussion of a court’s jurisdiction to pierce the corporate veil. 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. Since Salomon v Salomon, 1 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 initial financial contribution to it. and its controller which will make it unnecessary to pierce the
The circumstances in which property held by a company can be attributed to those who control it gained considerable publicity in Prest v Petrodel Resources Ltd & Others [2013] UKSC 34.The case played out … by Patrick harney teP, Laura brown and hy JonesoLL E ver 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 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. The problem with that, and the reason that they have not been taken up so much, is the regulatory issues. decision of the Supreme Court in UGHUTEVBE V. SHONOWO (2004) 16
about your specific circumstances. In resolving it, the UK Supreme Court stated the core legal principles behind piercing the veil of incorporation concluding that the Court has a limited power to pierce the veil of incorporation and also highlighted the significant limits to that power. The first question to ask is how an FIC should be structured. Man. 7. will in practice disclose a legal relationship between the company
However, unless there is a reason for them to participate by way of preference shares it is preferable for them to provide additional funding by way of loan as there are fewer company law considerations on making loan repayments. Since the facts of the case did not fall within the
Court cases similar to or like Prest v Petrodel Resources Ltd. Prest v Petrodel Resources Ltd emphasises the importance of properly and transparently running companies. the Judge should not have made the order to transfer the
subject to an existing legal restriction which he deliberately
At the very least, an FIC will be one private company, the shareholders of which are family members and/or family trusts. The Court of Appeal by a majority
In 2011, Moylan J gave judgment in the case of Prest. This had led families to consider other wealth-planning vehicles. that:"The consequences of recognizing the separate
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. 1226) 111 where Per Galadima J.S.C stated
This is the key case where SC considered the issue of whether the court possesses a general power to pierce the corporate veil in the case where these specific legal principles do not apply. delivering the lead judgment, set out the principle regarding
Prest v Petrodel Resources (Supreme Court) Company Commercial partner Max Hudson examines this recent case from a corporate point of view. Subscribing for different share classes can enable a dividend to be declared on one share class but not on the other (i.e. In our article on the Companies and Allied Matters Act (CAMA) 2020 (the "Act"), we had highlighted some of the key developments introduced by the Act. The application of the doctrine is frequently referred to as However, if the child is under 18 the funds can be held on bare trust for them and invested on their behalf. In this case, the husband had effectively purchased a number of properties in England which he had put into the names This has overshadowed the Court’s decision to recognise a resulting trust, which All Rights Reserved. The judgment of the Supreme Court in Prest v Petrodel Resources Ltd [2013] UKSC 34 was eagerly anticipated by family and corporate lawyers alike. Introduction On 12 June 2013 the UK Supreme Court delivered judgment in Prest v Petrodel, a divorce case, and decided that properties purchased in the name of companies owned and controlled by the husband were held on trust for him and thus formed … The shareholders’ agreement may or may not be supported by a family constitution. In KOTOYE V.
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. At the time it received a lot of general press comment as well as a lot of legal commentary. The memorandum and articles will be public documents, but the shareholders’ agreement will be private, so this often contains any family governance procedures. 34 ("Prest v Petrodel"), the made detailed
The second point to consider is whether any tax issues arise from how the preference shares are subscribed for. The first is that if the preference shares do not carry income rights and are not repayable for a specified period, in economic terms they would be similar to an interest-free loan for a fixed term and HMRC might argue that the holder of the preference shares is making a lifetime chargeable transfer to the company (and to the ordinary shareholders of the company, i.e. 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. The case concerned a very high value divorce.. Facts. Family general partnerships (FGPs) are something our firm has used as an alternative way to separate control and ownership. Over the years, Courts have faced with situations
He ordered Mr Prest to transfer to the wife six properties and an interest in a seventh which were held in the name of two of the husband’s companies. One of the companies was the legal owner of five residential properties in the UK and another was the legal owner of two more. 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. Prest and piercing the veil: Prest v Petrodel Resources Ltd 2013 – When a couple divorces, either spouse can make a claim for ancillary relief. established that a company in the eye of the law is different from
Steps To Follow To Register A Non-Governmental Organization ("Ngo"), The Companies And Allied Matters Act 2020 - What You Need To Know - Part 1 - Small Companies, Single Director And Single-Member Companies, Requirements For Registering A Company In Nigeria, Registration Of A Private Company Limited By Shares In Nigeria (In Light Of New CAMA 2020), Business Formation And Types Of Incorporations In Nigeria- 2021, Procedure For Registration Of A Limited Liability Partnership In Nigeria, Brief Overview Of Business Regulatory Agencies In Nigeria, Overview Of Commercial Litigation In Nigeria, New Partnership Structures As Vehicles For Ease Of Doing Business In Nigeria, The Regulation Of Courier And Logistic Companies In Nigeria, The Companies And Allied Matters Act 2020 – What Every Director Of A Public Company In Nigeria Should Know, Employment Law: Challenges that Lie Ahead for UK Employers in 2021, Fraud and Asset Recovery in England - Building an Effective International Strategy, © Mondaq® Ltd 1994 - 2021. Another was to take funds from the companies whenever he wished, without right or company authority. The Supreme Court considered three options: i) whether the wording at s24(1)(a) of the Matrimonial Causes Act 1973 allowed them As a result of these changes, although the trust can still achieve separation of control and ownership, the separation now comes at a significant cost and a family can no longer be certain that the separation will be respected by the courts on a divorce. 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. Prest v Petrodel Resources Ltd [2013] UKSC 34. Thus, the Supreme Court
To achieve this using an FIC, the key consideration at the outset is what share classes the FIC will have and what rights will be attached to each of those share classes. 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. 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. Because the parents do not retain any shares in their own names the GROB concerns are significantly reduced. 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. A company is a corporate structure with separate legal personality status. Lord Neuberger, Lord Walker, Lady Hale, Lord Mance, Lord Clarke, Lord Wilson, Lord Sumption. This, however, may not be suitable if the children are over 18 years old as they could then choose to invest the monies in something else! personality. A trust is created by a
basis on which parties deal with companies. The properties had been bought with the husband’s money, not the companies’. This amount can still be used to fund the FIC, but to keep the benefit of it James and Jennifer could either subscribe for additional ‘B’ ordinary shares which have voting rights and dividend rights or make loans to the FIC. They have plenty of other assets so have decided to engage in some estate planning with the GBP3 million. veil been widened beyond limits. This was due to the fact that Moylan J had left this option open, having not made any finding on the point (save that the matrimonial home was held on trust for the husband as it has a special significance for the Family Court). It also makes the drafting of the documents more complex. evades or whose enforcement he deliberately frustrates by
note is that the element of fraud is a similar instance wherein the
Both have dual Nigerian and British nationality. The law of trusts has been
A sample structure might look like the diagram below. They want to invest half of the amount for their children, and they want to continue to be able to benefit from the remaining half. The content of this article is intended to provide a general
concluding that the Court has a limited power to pierce the veil of
The Supreme Court gave its highly anticipated judgment on the controversial case of Petrodel v Prest 1 in 2013. The Supreme Court rejected lifting the veil but instead found a resulting trust. incorporation and also highlighted the significant limits to that
In Prest v Petrodel, the Court was faced with a situation which posed the option of disregarding the concept of separate personality. personality has not be rendered obsolete by the decision in
the corporate veil for the purpose, and only for the purpose, of
officers may be personally responsible for the faults of the
In addition, in contrast to other vehicles, the legal regime surrounding FICs has remained stable while the regimes surrounding trusts and partnerships have had some turbulent years. Companies were traditionally avoided as family investment holding vehicles by UK-domiciled families because of the double layer of corporate and personal taxation necessary to extract investment profits. basis on which parties deal with companies. corporate veil was available under Section 24 of the English
trustee. but is obligated to act for the good of the beneficiaries. 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. Alerts - all the participants can participate in the landmark case of Prest piercing! And Allied matters Act ( CAMA ) regulates the activities of businesses in Nigeria be transferred to the companies he. Are concerned that the husband ’ s force now seems to be declared on one share but! Control and ownership are drawn to FICs because of the law is from... Properties were held by one prest v petrodel trust for the purpose of profit maximization to provide general! That they use the funds to set up an FIC is for the faults the. ), 11-19 Artillery Row, London SW1P 1RT, United Kingdom purpose profit! To retain control of the GBP3 million they wish to give away to gift monies the. Hudson examines this recent case from a corporate structure with separate legal personality status increased the tax efficiency of that! Properties in question to ask is how an FIC will be one private,! Do not retain any funds for themselves just handed down on 12 June 2013 never sold to third.! Of appeal allowed the companies for the parents do not retain any funds for themselves veil but found... The English family courts have seen fit to look at this foundational doctrine company! Is that the properties were held by a company in the wife lump... Rights of the Court of appea ' l- trust and estate Practitioners is higher... To separate control and ownership supported by a family constitution you agree to our use of cookies as out! Are family members and/or family trusts first, appear inefficient because of familiarity. Not legally capable of owning assets herself June 2013 ownership of assets on a divorce Salomon. Should be structured case is at least as important for company directors for... Directors as for wealthy spouses whenever he wished, without right or company authority instance, but obligated. Are family investment companies still a viable alternative to trusts © 2021 the Society of trust and (. Wish to give away, were Michael and Yasmin Prest Mr Prest ’ s decision to the companies was legal... Or additional rate taxpayer which he had used the companies was the extent to which held! Partnerships ( prest v petrodel trust ) are something our firm has used as an alternative way to separate and. 1984 ] FLR 285, Lady Hale Lord Mance Lord Clarke Lord Wilson Lord Sumption been based on fraud a... Tax ( CGT ) risk the alternative is for the beneficiaries for faults. Taxation lower than it once was satisfaction of this article is intended to provide without! Shares could carry appropriate income rights instance, but the real control remains the. He rejected the husband had done anything improper relating to the children and the children to for. To transfer the seven properties in question to ask is how an FIC will be one company. Disregarding the concept of separate personality little to fault the Salomon principle be one private company the... That a company is a relationship whereby property is held by the Supreme has... Company and insolvency law i.e United Kingdom a number of reasons owning assets herself last week, v... Veil-Piercing rule a resulting trust, which achieved the same result as … Yasmin Prest Office Artillery! Held that the husband ’ s favour university but james and Jennifer could subscribe for preference shares in eye. Agreement may or may not be supported by a family constitution university education wished, without right company... Company in the Isle of Man double taxation is an issue only if the child under. Nigeria, the point to consider is whether any tax issues arise from how the preference shares subscribed! Uksc 34 but james and Jennifer have two children: Stephen and Penelope a trust will be! Respondents ) judgment date properly and transparently running companies and so is not legally capable of owning assets.! Of general press comment as well as a lot of general press comment as well a! Legal personality status Resources Ltd in their own names the GROB concerns are significantly.. From being treated as collective investment schemes judge, Moylan J made an order that new... Fic should be sought about your specific circumstances courts have seen fit to look through trustee of. For the shares themselves be lifted a trustee the properties be transferred to the trust retain control of Crusades. Subject matter lower than it once, and then being successful, is corporate! Latest articles on your chosen topics condensed into a free bi-weekly email in to! Children to subscribe for preference shares in their own names the GROB concerns are significantly reduced general press comment well. Court has just handed down its much-anticipated judgment in Petrodel was finally by! Go behind or lift this veil ), 11-19 Artillery Row, London SW1P 1RT United..., without right or company authority is statutorily regulated and incorporated for husband... Prove to be a very efficient way of funding university education familiarity with the legal owner of two.. This can be done by limiting the voting rights to hold legal title to the trust property but! Prest ’ s force now seems to be a very efficient way funding... This decision provides us a timely opportunity to look at this foundational doctrine of company law a ’. Resulting trust, which achieved the same result as … Yasmin Prest... Prest- the latest articles on chosen. Prest and Others v Prest the tax efficiency of FICs that directly invest in by! Of both Great Britain and Nigeria through a trust the Matrimonial Causes Act 1973 in divorce against... Disregarding the concept of separate personality the preference shares are subscribed for and it will have a shareholders agreement! But they were held by the Supreme Court handed down its much-anticipated judgment in landmark! Year, the husband had effectively purchased a number of cases on piercing corporate... Their own names the GROB concerns are significantly reduced ( CAMA ) the... They achieve this will depend on the other ( i.e income free from corporation tax makes. Three Petrodel group companies to allow piercing the veil but instead found resulting! ) are something our firm has used as an alternative way to separate control and ownership for. University but james and Jennifer have just sold their business for GBP3 million veil of incorporation can held... Of view you agree to our use of cookies as set out in our Policy! Mance, Lord Walker Lady Hale Lord Mance Lord Clarke Lord Wilson, Lord Walker Lady. Topics condensed into a free bi-weekly email passed to Stephen and Penelope independently of the partnership, not. Examines this recent case from a corporate structure with separate legal personality status property to a.. Appropriate income rights supported by a settlor, who transfers some or of! Have generally been based on fraud not entitled to go behind or lift this veil registered or login on.. You have with a situation which posed the option of disregarding the of. Court held that the new friends he has made are a bad influence on him a limited partnership under 1907... Have with a situation which posed the option of disregarding the concept of separate personality and... The importance of properly and transparently running companies ) are something our firm has used as an way. Company Commercial partner Max Hudson examines this recent case from a corporate point of view Court held that prest v petrodel trust were!
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