What is a Lasting Power of Attorney
A Lasting Power of Attorney (LPA) is a legal document which allows an appointed person or persons (the Attorney) to make certain decisions on your behalf. These decisions can be separated either in relation to your property and financial affairs, or in relation to your health and welfare.
A Business Lasting Power of Attorney (BLPA) enables the donor (business owner) to authorise a suitable Attorney to make decisions in the best interests of the business when they are unavailable to act themselves or lack mental capacity.
Surely my spouse, children, siblings, or parents can still act for me even if I do not have an LPA or BLPA?
Without an LPA or BLPA, there is no other legal authority which allows someone else to make decisions for you.Furthermore, the Mental Health (Discrimination) Act 2013 prevents a director being removed by the Court on grounds of mental capacity as it would be deemed discriminatory. As a result, where no BLPA is in place, various risks can arise. For example, in the event a bank account signatory loses mental capacity, and the bank becomes aware of this, they can freeze the bank account to protect the interests of the vulnerable individual. In turn, this increases the risk of overdrafts or loans being recalled. Although this is ideal to circumvent fraud, it could have dire consequences for the operation of the business. It could even become difficult to pay creditors, employees or tax and running the business generally where a businessperson loses mental capacity. Contracts which were entered into by directors with capacity could become unenforceable if circumstances of incapacity suddenly arise.
Therefore, LPAs/BLPAs are important documents which will be necessary if you lose the ability to manage your personal or financial affairs yourself. LPAs/BLPAs can only be created when you have the mental capacity to understand your instructions, including who you wish to appoint and the consequences of having an attorney; preparing these documents and ensuring they are registered in advance is important as you do not know in which circumstances they may be required.
What happens if I lose my mental capacity and do not have an LPA/BLPA?
In the event you lose your mental capacity without having an LPA or BLPA, an application to appoint a deputy will need to be made to the Court of Protection. A similar application will need to be made to remove an authorised signatory who lacks capacity, as you would not be able to do so without their consent. One of the risks with this is that you will not have chosen the person making the application yourself, as opposed to an LPA/BLPA, where you have control over who acts as your Attorney. It could mean someone who lacks the requisite skills and/or knowledge of your industry or just someone who you would never have chosen yourself having control over your decisions as they become your deputy.
The process can be expensive and an application could take months, if not longer, during which time operational decisions which are crucial to the function of the business could be delayed or the business could even be exposed to uncertainty of survival.
BLPAs are also practical as it ensures business decisions can still be made where the donor is unavailable; for example, a missed flight or other travel difficulties, being on holiday, unwell or on long term sick or in a situation where the donor simply wishes to retire from some responsibilities.
Before creating a BLPA, other company documents, such as the Articles of Association and any Partnership Agreements will need to be reviewed to check they do not prevent an Attorney from acting.
Appointing Attorneys will require careful consideration. It is not only based on trust and reliability but also capability of dealing with the business. Care and thought must be given to ensure the appointed Attorney would be someone who would act in the best interests of the business as they could have exclusive control.
Alternatively, the wrong Attorney could irk other members and directors of the company which could lead to dispute.
Factors such as knowledge of the market, familiarity with the business itself, camaraderie with the other directors, shareholders and partners and even supporting and agreeing with the donor’s business ideas will ensure an Attorney’s decisions are made in the best interests of the business. That said, it is not essential for the Attorney to understand all the day-to-day activities of the business as a donor under the LPA/BLPA can provide further instructions to allow Attorneys to receive guidance from trusted advisors and could even extend powers for the attorney to have discretion to re-assign certain tasks to another person but retain managerial functions.
I want a BLPA drafted. What are the next steps? Can I do this myself?
The biggest risk to your business of having no LPA/BLPA in place, is having one which has not been drafted properly. We at KaurMaxwell will draft the document for you and ensure that it is in accordance with your instructions.
Businesses usually prioritise crisis management and prepare for issues such as floods, computer hacking or theft. Fewer will consider preparing for senior business-decision makers losing their physical ability or mental capacity to exercise their control. Although agents may have been appointed under contract, where the principal lacks capacity, agency decisions can no longer be legally made on their behalf.
If you require any further information or wish to have a Lasting Power of Attorney or a Business Lasting Power of Attorney drafted then please get in touch with our specialist team by telephone on 020 7052 3545 or by email at firstname.lastname@example.org
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact KaurMaxwell for advice before taking any action in reliance on it.
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