A simple business hack when preparing for the unexpected

Business continuity planning may range across various disaster scenarios – from cyber-attack to fire or flood – but can overlook the obvious, which is how the business will cope if the owner isn’t available to manage financial matters and decision making.

A simple solution is for the business owner to make a Lasting Power of Attorney (LPA) and appoint someone to look after their financial affairs and act on their behalf, and shareholders, partners and sole traders can all benefit from appointing an attorney in this way.

An LPA can enable day-to-day management when the business owner is not available – such as being overseas or incapacitated following an accident – but is able to give instructions to the attorney. It also safeguards for a more serious situation, where someone loses mental capacity and is unable to make decisions themselves, at which point the attorney can stand in.

Where no one is authorised to run the business and its finances, day-to-day operations may be impossible and the business crippled.

In the worst-case scenario, where the owner lacks mental capacity and there is no LPA in place, affairs will have to be managed by a deputy appointed by the Court of Protection. This can be slow and expensive, taking up to six months to appoint a deputy and with the Court then having to grant permission for transactions, a situation which could see a business failing before financial matters 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 if the person who entered into the contract now lacks capacity. It can have an impact on the business owner’s family as well, if they are reliant on income from the business.

And even where it is just a temporary issue, with the owner 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.

“When people 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 business and personal life, at every age: accidents or illness can affect the young or middle aged just as they can affect the elderly. By appointing a business attorney under an LPA, and registering it with the Office of the Public Guardian, business owners are taking a simple step, but one with far-reaching benefits for safeguarding the future of their enterprise,” said Private Client expert Ali Ebrahim of Bowling & Co Solicitors.

“To avoid disruption, making a business LPA should be part of any business owner’s continuity plan and crisis management strategy. While it’s a simple process, it is 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 the articles of association in a limited company or partnership agreements, it’s also important to get professional advice to avoid contradiction.”

Once an LPA has been made, it must be registered with the Office of the Public Guardian before attorneys can act, with a fee of £82 per LPA. It can then be submitted to any institution such as a bank or utility provider, enabling the institution to deal directly with the appointed attorneys.

The attorneys will have 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 to authorise payments or write cheques. If you are mentally capable, the attorney should only do what you authorise them to do, but if you become mentally incapable and are no longer capable of authorising or consenting to the attorney’s decisions or actions, the attorney will be able to make decisions and do things on your behalf. However, there is no cut-off point at which you are presumed to be incapable; 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.

There are two kinds of Lasting Power of Attorney – one covering financial and property affairs which can be used for both business and personal affairs, and another covering personal health and welfare. Where a business owner decides to do an LPA for financial and property affairs, it is worth considering having two separate LPAs for business and personal finance, as the decision on who is a suitable attorney may be quite different and will enable a clear role to be specified.

Attorney checklist:

1. 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 own finances, how well you know them and how sure you are that they will make the right decisions for you.

2. 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. Alongside, a professional attorney can be appointed whose job is 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. This would allow you to restrict the sale of property or investments without the input of a professional, for example.

3. Give good guidance

Attorneys should understand their fiduciary and statutory responsibilities, and how to satisfy them, from the outset. They should appreciate their role with reference to 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.

If you would like any more information in relation to this article then please feel free to contact me via email: ali.ebrahim@bowlinglaw.co.uk or visit my profile.

Website content note: This is not legal advice; it is intended to provide information of legal interest about current legal issues.

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