It is not incomprehensible that wealthy business shareholders feed their high-net-worth assets through their companies, with the consequence of making the assets available to their spouse limited and out of reach. It therefore comes as no real surprise that the English family courts have shown that they are prepared to tackle the issues related with parties hiding international assets within divorce proceedings, whilst trying to remedy the same.
This article takes a look at the recent judgment made in Akhmedova v Akhmedov  EWFC 23 (Fam) where the wife sought to enforce financial provision orders in the region of a £453m lump sum, after the Russian billionaire husband had taken elaborate steps to conceal his wealth and evade enforcement of the judgment.
In 2016, Mrs Akhmedova was awarded a £453m lump sum comprising of a £350m cash sum together with the transfer of various properties, as part of the financial remedy settlement. However, in January 2018, it was reported in the press that Mrs Akhmedova was ‘yet to receive a penny’ from her former husband.
Mr Akhmedov held two corporate entities that were being used to shield his true wealth from the English courts. In the Isle of Man, Mrs Akhmedova obtained orders in respect of Mr Akhmedov’s helicopter and private jet and in Dubai she obtained orders in respect of his yacht (‘Luna’), held by a Liechtenstein corporate entity named ‘Straight’, worth €260m.
It was found that Mr Akhmedov never intended to part with his beneficial ownership of the assets, or the cash, as the transfer of €260m made to ‘Avenger’, another of his corporate entities held in Panama, was merely part of a 'faux sale of the M.V. Luna', by Tiffany (a company held in the Isle of Man). At the time of this transfer, Mr Akhmedov was the owner of Avenger and the beneficial owner of Tiffany, and so there was no real validity in this transaction.
In a rare move, the Family Court ‘pierced the corporate veil’ following Mr Akhmedov’s attempts at concealing his wealth through complex offshore asset structures.
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Piercing the corporate veil is not a decision that the courts will have taken lightly. It is important that the courts recognise that companies have separate legal personalities from the shareholders, provided the 'identity' is not being used for improper purpose.
In this current case, it was argued that Mr Akhmedov’s corporate entities, Avenger and Straight were mere 'ciphers' of Mr Akhmedov, being used by him to evade the judgment. Two grounds were put forward by Mr Dakis Hagen QC, on behalf of Mrs Akhmedova, to justify piercing the corporate veil:
That Mr Akhmedov was using the corporate entities as ‘mere nominees’, and that the entities held the assets on behalf Mr Akhmedov as the beneficiary.
Straight was incorporated for the sole purpose to transfer the yacht and so was being used by Mr Akhmedov to deliberately frustrate enforcement, and evade his legal obligations to his wife.
The decision of the Family Court
During the case, Haddon Cave J concluded that '[Mr Akhmedov] is acting with real impropriety and deliberately seeking to evade his legal obligations'.
Accordingly, the Family Court issued enforcement proceedings to secure Mrs Akhmedova access to the yacht held in the corporate entity’s name by piercing the corporate veil.
In the enforcement proceedings in England, the court made orders to assist Mrs Akhmedova in recovering her award from the 2016 proceedings. Pursuant to the main order in the previous proceedings, Mr Akhmedov was ordered to pay a lump sum of £350m together with transfer of property; various Panama and Liechtenstein corporate entities were made jointly liable; transfers of a modern art collection were set aside; Mrs Akhmedova’s claims would only be dismissed with full compliance of the order and there was a liberty to apply to bring any applications for enforcement purposes under s 37 of the Matrimonial Causes Act 1973.
The court ordered that various Panama and Liechtenstein corporate entities namely, Avenger and Straight were joined to the proceedings, making them jointly and severally liable for the payment of the lump sum, with Mr Akhmedov.
There was also a declaration made to recognise that the yacht, Luna, was beneficially Mr Akhemdova’s asset and that Avenger and Straight were his ‘alter ego’. As a result of this and other points raised with in the proceedings, an order was made to pierce the corporate veil of Straight, allowing Mrs Akhmedova access to the Luna.
Mrs Akhemdova's lawyers obtained a freezing order in the Dubai International Financial Centre (DIFC) in aid of the English judgment and launched substantive proceedings to enforce it. She then successfully sought a precautionary attachment in the local Dubai courts in effect arresting the vessel. Mr Akhmedov has now filed an appeal with a Dubai body called the Joint Judicial Tribunal, which is set up to decide which court has jurisdiction over a legal proceeding, in this case the conflict between the onshore Dubai courts and the DIFC courts. Mr Akhmedov is arguing that this is a matrimonial dispute only and therefore should be heard by the Dubai courts under Sharia law.
What this means for us?
The case raises a number of interesting issues, in relation to the treatment of assets held through companies within financial remedy proceedings, and the steps the court will go to in order to remedy such a situation where one party has intentionally concealed assets in this way.
Mr Akhmedov may have assumed sailing his yacht, owned by a corporate entity, into Dubai would be beyond the reach of an English Court judgment; however the DIFC Courts – an English-language common law judiciary – make it possible for parties to seek to execute foreign judgments in Dubai.
In the landmark case of Petrodel Resources Ltd v Prest, it was determined that piercing the corporate veil should ‘only be used where necessary to achieve justice’. This case is thought to be the first since Prest where the court has pierced the corporate veil applying the ‘evasion principle’.
The case also highlights how difficult it can be to enforce decisions made by English courts when there are international assets involved, leaving some spouses penniless for years despite the court ruling in their favour.
Tips for lawyers
Where parties are deliberately trying to conceal their wealth in order to disadvantage their spouse and defeat their claims, we should be doing everything we can to ensure that our clients are getting a fair outcome, based on the true assets of the case. Here are a few tips/reminders:
Make early enquiries, be that through the foreign courts re disclosure, or by instructing corporate intelligence, experts in asset tracing and/or forensic accountants.
Seek advice from experts in any connected or relevant jurisdictions. You need to understand if/how you could enforce the English courts’ decisions/judgments in the relevant jurisdiction. Seek this advice as early as possible, given the ability to enforce will dramatically affect the orders sought in England and Wales.
Consider seeking advice from tax, estates and contentious trusts lawyers as and when appropriate. In having considered the conflict of laws position, the English Family Court in Akhmedova v Akhemdov, was prepared to apply English law, the lex fori, to whether the court could pierce the corporate veil of Straight, notwithstanding it is a Liechtenstein company.
If acting for the asset holder, take advice on how a company may submit to the English court's jurisdiction. I say this as in Akhemdova v Akhemdov, on grounds of privity of interest, the court took Straight to have submitted to the English court's jurisdiction owing to Mr Akhmedov's submission to the jurisdiction.
Understand your client’s assets and the structures that hold them. If you don’t understand the personality of a company or the beneficial ownership of an asset then seek advice from a corporate lawyer. We as family lawyers don’t always know the answer, and it’s far better to check the position at the outset!
While this is an extreme case – both in the lengths the husband has gone to in order to conceal and divert assets and the significant wealth involved – English courts’ decisions in this case will guide how future high-value divorces are handled, and how large settlements can be enforced.