Business Lasting Powers of Attorney

Transcription

1 Business Lasting Powers of Attorney Do you own a business as a sole trader, partner or are you a director of a limited company and/or a shareholder? Ever thought about what would happen if you were unable to run that business through accident or illness? Who would authorise the bank transfers, deal with payroll, sign contracts, chase outstanding debts, in short, keep the business going if you could not? There is a simple answer to deal with this. You can create a Business Lasting Power of Attorney or an LPA for Business. LPA s are documents where you appoint someone (an attorney) to take your place and deal with particular matters if you are unable to. They are normally only thought about for personal matters. Now though, you can and you should make LPA s specijically for your business. Business LPA s specify that a particular person or people would be able to deal with matters concerning your business, partnership or company, fuljilling your role for you, if you cannot. This might meant the difference between keeping your business going until you can return to the helm of it, or the business going under. Sole Traders If you are a sole trader, you should make sure that you have someone who can step into your shoes and act in your best interests and those of your business. As sole traders are normally responsible for pretty much everything, it makes perfect sense to make sure that you have appointed someone to take control if there is a problem. Partners and Directors For both partners and directors, it has become more important than ever to ensure that, if you have a specijic role in the business which is not be covered by someone else if you were not there, that you have a safety net. Prior to 2013, directors or partners who had lost their mental capacity could be removed by the remaining directors or partners under the terms of their Articles of Association or their Partnership Agreements. An alternative director or partner could then be appointed in their place, with little disruption.

2 However, in 2013, the law changed with the implementation of the Mental Health (Discrimination) Act. It is no longer possible to remove either a director or partner on mental health grounds. Not only that but you can no longer put contrary provisions into the company s Articles or Partnership Agreement to alter this. If a company or a partnership attempt to remove someone from their role, rather than support them in it, they leave themselves wide open to claims of discrimination. The problem is of course that directors and partners often have very specijic roles. Sometimes only one or a small number of particular directors or partners are the signatories on accounts, the only people responsible for entering into contracts, or taking other key decisions with regard to the business. If they can t do their job, who will do it for them? This becomes even more serious if there are loans to be repaid or the bank has to be notijied. If a lender is concerned that a business isn t being managed properly, then they can freeze the bank accounts and require either the partnership or company to provide them with proof that the business is being managed properly. They only have to give you 28 days to do this before they can ask for immediate repayments. Business LPA s In all situations, a Business LPA can be created to ensure that there is an attorney who can take over a role, without the need to remove someone from it permanently. There are a number of things to consider: You need to ensure that who ever you appoint is the right person, so they understand the responsibilities that you have and the role that you fuljil. Other family members may not be appropriate and remember that if they are not, other directors and partners have the right and a duty to object to someone who does not have the relevant expertise. You should make sure that if you are appointing another partner or director from the same business that this does not create a conjlict of interest or that that person will not have the ability through their voting rights to de-stabilise the company or partnership. You cannot force other partners or directors to take be appointed. They have to take on the role by choice.

3 If you are in a regulated profession, for example an accountant or solicitor and in a partnership or director of a limited company, then the only people that you would be able to appoint on your behalf must be those who are in the same professional body as you What happens if there is no Business LPA? There are three probable consequences. The Jirst is that the only way to have someone appointed on behalf of another is by way of an application to the Court. You would be making an application to appoint a Deputy. This can take months and is far more expensive. If the remaining directors and partners cannot agree on who should be appointed as the Deputy, then the Court will appoint a third party in their place. If you have to do this, while you are doing it, essential functions of your business may not be carried out. Contracts may be frustrated, causing problems with those that you supply to or liabilities may remain unpaid. The biggest problem is in relation to Jinance and loans. If you are unable to satisfy the lender that you are managing the business effectively, they have powers to ask for immediate repayment. This could mean the end of the business. Finally, it is worth remembering that both directors and partners can be held personally liable for the running of the business. If this is interrupted for a reason that could have been avoided, the owners of that business (whether it be the other partners or shareholders) may be able to look to the person responsible for any losses caused. Therefore, if you don t have something that will deal with this eventuality in place, you may be pursued for the loss that has been caused as a result.

4 Business Lasting Powers of Attorney FAQ s What is a Business LPA? Business LPA s, LPA s for Business or Commercial LPA s are documents whereby you appoint someone to take on your role in a business in the event that you have lost your mental capacity and are unable to carry out your duties or obligations. The person you appoint is called the Attorney. They have to carry on the duties that you would have carried out and act in the interests that you would have acted in. I thought LPA s were for personal matters only. What changed? We advise everyone to create Lasting Powers of Attorney in relation to their personal Jinancial affairs and health matters. When the Mental Health (Discrimination) Act 2013 came into force, advice from the Court of Protection indicated that the only way for someone who was running a business to appoint someone separately to take on their role if they lost their mental capacity was to create a separate LPA dealing with that situation. As long as the LPA makes it clear that there is an Attorney who acts in respect of the business and perhaps another in respect of personal Jinancial matters, you can have as many LPA s as you need. It is simple and sensible to either review the personal LPA s that you already have at the same time as creating a Business LPA, or to deal with both personal and Business LPA s at the same time. This will make sure that nothing in any of the documents causes a potential conjlict. How to Business LPA s work? You appoint someone to deal with matters connected to your business or your position within a business (for example as director or partner). They can only do this if you lose your mental capacity and the LPA is registered with the OfJice of the Public Guardian. If you are a director you must make sure that there are no contrary provisions in your company s Articles of Association and that there is a provision in there to appoint alternate directors. If you are a partner, you must make sure that there are no contrary provisions in your partnership agreement and again provision to appoint alternate partners.

5 I m a sole trader. Why do I need to bother? Sole traders are normally responsible for every job within the business and all of the key decisions that are taken. You should consider what would happen to the business if you weren t around to run it. Who would pay your debts, collect your fees, authorise work to be carried out? Who would have authority to deal with the bank, lenders or investors? You should have a Business LPA to ensure that the business continues without interruption. I m a partner. The Mental Health (Discrimination) Act makes no reference to partnerships. Do I still need a Business LPA? Yes. Sections 6 and 20 of the Equality Act 2010 state that there is a duty to make adjustments in respect of those suffering a disability, not merely remove them from their position. A disability can include loss of mental capacity. You should amend your partnership agreement, ensure alternate partners can be appointed and create Business LPA s for the partners. I m a company director. Why do I need a Business LPA? Section 172(1) Companies Act 2006 lists the responsibilities, obligations and duties of company directors. You must ensure that you fuljill these or you can be held personally liable. You therefore need to consider what you would do if you were unable to discharge those duties. By having a Business LPA, you will be appointing an Attorney who would be able to discharge those duties and obligations on your behalf. When did the model Articles of Association change and what does this mean? All companies that were incorporated after March 2013 have model Articles (unless they have opted to have bespoke Articles drafted for them) that does not include any provision for directors to be removed for reason of a mental health problem. However, model Articles don t automatically include provisions to allow an alternate director to be appointed. When making a Business LPA it is advisable to make sure that the company s Articles include the right provisions and amend them if they don t, to make sure that they do not conjlict with the use of a Business LPA.

6 Our company was incorporated prior to What should we do? Amend your Articles. Remove the existing provisions relating to removal of a director due to mental health issues and include provisions to allow directors to appoint an alternate director. Then make sure all of your directors have Business LPA s in place. I have a number of companies of which I am a director. How many Business LPA s do I need? The advice is that you should have a separate Business LPA for each of the companies that you are a director of. For the avoidance of doubt, each Business LPA should clearly display the company s registered ofjice address and company registration number that it relates to. Who should I appoint as my Attorney? It s entirely up to you, though you may wish to discuss this with your co-directors and partners. It should be someone who has the general knowledge, skill and expertise to fuljil your duties and obligations and have an understanding of the business. I m a regulated professional and a partner/director of a business. Who should I appoint as my Attorney? Being a regulated means that you must ensure that anyone who you appoint to act for you is also regulated. Therefore you should appoint an Attorney from the same profession or business sector that is subject to the same regulations that you are. What needs to be considered generally when appointing an Attorney? a) make sure that you appoint someone with expertise and knowledge of your business that you trust; b) if appointing another director or partner as your Attorney from within the business make sure that this does not create any conjlicts of interest or potential power struggles within it; c) directors particularly must take on the role of Attorney of their own volition and be independent; it cannot be part of any director s agreement to be another director s Attorney. They have to freely take on the role otherwise there may be issues with undue injluence.

7 What are the costs of preparing a Business LPA? There are two costs to be aware of. Firstly, the cost of preparation of the document or documents depends on how many are being prepared and whether or not the Articles or partnership agreement need amendment. You are probably looking at several hundred pounds. This is however a legitimate business expense and can be paid for by the business. If the Business LPA is needed it will need to be registered and a fee paid to the OfJice of the Public Guardian. Currently this is 110 per document. My company/partnership is too small. Why go to the expense? This is up to you and you need to carefully weigh up the risks of what would happen if you or one of your co-directors or partners were unable to work for a prolonged period. In our opinion, the risk that you take for the sake of a few hundred pounds really isn t worth it and you should treat it as an investment, in the same way that you take out insurance. For more informamon about creamng a business LPA, or any other legal maoer, please get in touch: By phone: By emily@quercussolicitors.co.uk By post: Quercus Solicitors LLP 7 Winchester Close Banbury Oxfordshire OX16 4FU