Daria Sakhno examines the practice of piercing the corporate veil in HNW divorce proceedings

July 02 2021

This article was originally published in The Legal Diary and can be accessed here.

Daria Sakhno, Foreign Lawyer 

Akhmedova v Akhmedov: Piercing the corporate veil by Family Judges in England

When deciding where to file for divorce, international parties often consider factors such as their primary place of residence, where the marriage was registered, or the location of assets.  The recent judgment in Akhmedova v Akhmedov [2021] EWHC 545 (Fam) (“Akhmedova”) highlights the potential importance of also considering the range of procedural advantages available in a particular forum when making that choice. 

English courts will aim to reach a judgment enabling the parties to meet their financial needs, while prioritising the needs of any children. To achieve that, English judges use several well-established precedents, as well as legal tools, such as ‘piercing the corporate veil’.  This has particular relevance in situations involving high-net-worth families, where a spouse may have assets held through complex corporate structures.  

While the device of piercing the corporate veil is commonly known in corporate cases where the court may, in exceptional cases, disregard a company’s legal personality as separate and distinct from its shareholders, it has seen increasing recent use in family proceedings. In Akhmedova, the High Court applied the doctrine of piercing of the corporate veil based on the ‘evasion principle’ to the actions of Mr Akhmedov, having concluded that he hid part of his assets, namely the luxury yacht ‘Luna’, which was previously owned by Mr Abramovich and is the second-largest expedition yacht in the world, through complex offshore asset structures. The Court found that certain corporate entities were merely the ‘alter ego’ of Mr Akhmedov and should be joined to the proceedings as separate respondents. 

In Akhmedova the English courts demonstrated their ability to keep pace with the continually developing ways in which high-net-worth spouses hold and attempt to shield their assets.  Moreover, when deciding divorce cases, English family judges can draw upon tools inspired from corporate litigation, even if in practice it is become exceedingly rare for a claim to pierce the corporate veil to succeed in England in a company law context.  The question remains open if whether the decision to pierce the veil in family proceedings will bind a future court in a commercial dispute where a creditor seeks the personal liability of the spouse that owns the company.
 

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