Family Solicitors Ipswich – Should farming businesses operate as companies?
‘It’s becoming increasingly common for large and well-organised farming businesses to operate as companies rather than the more common partnership business model.
Traditionally property belonging to a company has been difficult to deal with on a divorce and farmhouses might well be owned by a company. A spouse operating a business could not be compelled to transfer a property owned by a company to their estranged spouse on divorce as the property would not personally belong to him. He/she could not therefore deal with that property. The position often caused triumph on one side and a good amount of frustration on the other. However the court’s hands were tied. It could not ‘pierce the corporate veil’.
In a recent development, established by the case of Petrodel Resources Ltd. and others v Prest  UKSC 34, the court has opened the door, leaving it slightly ajar, for the transfer of a company-owned property to the estranged party.
The husband, Michael Prest and wife, Yasmin Prest were married in 1993. Mrs Prest petitioned for divorce in 2008, after a 13 year marriage. They lived in England in the main, although from 2001 the husband lived in Monaco. There was also a house in Nevis, West Indies.
The husband wholly owned and controlled seven companies, collectively the Petrodel Group. The ownership of seven properties fell to be considered. These were wholly owned by the companies. The issue before the court was whether it had power to order the transfer of these seven properties to the wife given that legally they did not belong to the husband.
The court declined to go as far as to sanction outright the transfer by the husband of any of these properties to the wife. It cited the prevailing legislation (the Matrimonial Causes Act) and said that nothing in the Act or its wider social context authorised that. Equally it would not pierce the corporate veil. However, it said that there was a restricted principle of English law that could in some circumstances allow a court to pierce the veil to deprive a company or its controller of the benefit they would otherwise have obtained by the company’s separate legal identity. Those circumstances would be where a person has an obligation or liability which he deliberately evades by putting a company, which he controls in the way.
The wide publicity around the publication of the judgment in Petrodel v Prest will encourage estranged spouses to challenge any ring-fencing of farm property owned by a company. It remains the case that a well-thought out pre-nuptial agreement is the safest way forward to preserve assets for farming families.’