Business continuity planning may range across various disaster scenarios – from fire or flood to cyber-attack – but can overlook the obvious. How will the business cope if the owner isn’t available to manage financial issues and decision making?
This can be a particular issue for you as a business owner, whether you’re a shareholder, partner or sole trader, you can benefit from making a Lasting Power of Attorney (LPA) and appointing someone to look after your financial affairs and act on your behalf.
When you think of an LPA, it is often in terms of being for older people, who want to have someone in place to manage their personal affairs or to make health decisions if dementia sets in. But LPAs have a place in both your business and personal life, at every age: accidents or illness can affect anyone, not just the elderly.
By appointing a business attorney under an LPA and registering it with the Office of the Public Guardian, you are taking a simple step, but one with far-reaching benefits for safeguarding the future of your enterprise.
Ensuring business as usual
To avoid disruption, making a business Lasting Power of Attorney should be part of your business continuity plan and crisis management strategy. While it’s a simple process, it’s crucial to consider carefully who you are appointing as your attorneys and whether you wish to place any restrictions on what they can agree on your behalf while you are mentally capable. Because it can also impact on aspects such as partnership agreements or the articles of association in a limited company, it’s also important to get professional advice to avoid contradiction.
An LPA enables day-to-day management when the business owner is not available but can give instructions to the attorney such as being overseas or incapacitated following an accident. It also safeguards for a more serious situation. If you were to lose mental capacity and became unable to make decisions yourself, your attorney can step in and make them for you.
Where no one is authorised to run the business and its finances, day-to-day operations may be impossible and the business crippled.
Worst-case scenario – mental capacity
In the worst-case scenario, if you lacked mental capacity and didn’t have a Lasting Power of Attorney in place, your affairs will have to be managed by a ‘Deputy’ appointed by the Court of Protection.
Appointing a Deputy can be a slow and expensive process, taking up to six months. The Court then has to grant permission for transactions, a situation which could see a business failing before financial issues are resolved.
The impact may be felt with the bank, who can freeze accounts if an account signatory lacks capacity. Similarly, some contracts may become unenforceable. It could have an impact on your family as well if they are reliant on income from the business.
And even where it is just a temporary issue, whilst you are out of contact or out of action for a short period, simply paying creditors or wages can become difficult, and contracts may be lost if no one has authority to negotiate or sign.
The Attorneys’ role
The attorneys will have the power to enter into any transaction that is within the scope of the LPA unless you have specifically forbidden it. So they will be able to deal with business decisions and authorise payments or write cheques.
If you are mentally able, the attorney should only do what you authorise them to do. But if you become mentally unable to authorise or consent to the attorney’s decisions or actions, the attorney can make decisions and do things on your behalf. However, there is no cut-off point when you are presumed to be unable. Mental capacity is decided on a decision-by-decision basis and the attorney must do everything practicable to help you arrive at your own decision on every occasion.
Types of Lasting Power of Attorney
There are two types of Lasting Power of Attorney:
Financial and Property Affairs
This can be used for both business and personal affairs, but it’s worth considering having two separate LPAs for business and personal finance. The decision on who is a suitable attorney may be quite different and will enable a clear role to be specified.
Personal Health and Welfare
As the name suggests, this allows you to name Attorneys to make health and welfare decisions on your behalf if you are unable to.
Once an LPA has been made, it must be registered with the Office of the Public Guardian before attorneys can act, and a fee is payable. It can then be sent to any institution such as a bank or utility provider, enabling them to deal directly with the appointed attorneys.
Attorney Checklist
Choose attorneys carefully
An attorney has far-reaching powers and problems are likely to arise if they do not appreciate the role they are undertaking, or if there are insufficient checks and balances in the process. Before appointing an attorney, think about their business experience, how well they look after their finances, how well you know them and how sure you are that they will make the right decisions for you.
Make attorneys accountable
You can appoint more than one attorney and require that they are involved in each decision, although that can make transactions more complicated. A professional attorney can also be appointed to oversee how matters are being handled. Alternatively, you can include a requirement within the LPA for the attorney to consult with a third party if a decision exceeds a given threshold or for specific assets. For example, this would allow you to restrict the sale of property or investments without the input of a professional.
Give good guidance
Attorneys should understand their fiduciary and statutory responsibilities, and how to satisfy them, from the outset. They should appreciate their role concerning the Mental Capacity Act 2005 Principles and Code of Practice, particularly in how they consult with the donor of the LPA and help the donor to make their own decisions. Recognising that they may need to get expert advice, whether legal, financial or otherwise, is also important if they are to act within the reasonable standards of care and skill required by an LPA.
For advice on creating a business lasting power of attorney, or to discuss any other personal legal issue, please contact any member of our specialist private client team on 0115 9 100 200 or click here to send an email.
Posted on January 30, 2020