THE BLOG

What's Behind the Corporate Veil?

03/04/2013 12:05 BST | Updated 02/06/2013 10:12 BST

Going through the process of divorce naturally takes a huge toll on your emotional and financial thresholds. However, as seen in the recent Supreme Court divorce case, Petrodel v Prest, the boundaries between the corporate world and personal life are blurring, at a lightning-fast pace.

The "veil of incorporation" is a basic principle of law that wedges a clear separation between the individuals who own and run a company and the company itself. This process is most prominently demonstrated when a limited company enters liquidation; the assets of the company are fair game, whereas the director's assets remain entirely protected.

Having followed the Petrodel v Prest divorce case closely, its final ruling may indicate a new era for high-value separations with substantial assets at stake. Oil tycoon Michael Prest, who co-founded Petrodel Resources, a Nigerian oil company, was initially ordered to transfer 14 properties, to his wife, Yasmin Prest in a decision taken by family lawyers. However, on appeal corporate lawyers became involved with the case and the ruling was overturned, stating that the property fell under the ownership of his company and not his person.

With the corporate veil slowly lifting, we are very likely to see an increasing battle between family law and business law in future divorce cases, depending on the final outcome of Petrodel v Prest. Based on my experience, if the Supreme Court rules in favour of Mr Prest, then the ramifications for divorcing couples will be of great significance, meaning a huge scramble will occur to transfer personal assets to businesses associated with the divorcees. However, if the Supreme Court upholds Mrs Prest's appeal, then it will be corporations that will be on the receiving end of widespread change.

The big question remains whether hiding behind the corporate veil will be of any meaning to the everyday man and woman, or if it will remain a luxury loop-hole afforded to only multi-millionaires and the mega wealthy. Michael Prest was criticised by a judge last year for treating court proceedings 'as a game' by pleading poverty when in reality he is one of Britain's most successful businessman. When the stakes are so high for smaller businesses and lower income families, it's unlikely that the rest of us could be so 'playful'.

The best result we can wish for is clear guidance and leadership from the Judges and hope they will put up barriers against would-be cheats, whilst safeguarding those taking the sensible steps in financial planning for their family's future.

One can only hope that by removing the corporate veil, the veil of ignorance will come off with it.