Business Lasting Powers of Attorney

Business and commercial LPAs (BLPA’s)

These documents are a critical component of any business’s crisis management strategy and risk management policy.

What is a BLPA?

These documents allow you, as the operator of a business, to appoint an attorney or attorneys to make decisions and act in relation to your business affairs when you are otherwise unavailable or, critically, if you suffer illness or accident that removes your mental capacity to act.

What is mental capacity?

Under the Mental Capacity Act 2005 a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.

These documents should be considered separately to similar arrangements you should have to manage your personal finances in a similar situation. The skills and attributes required of a business attorney are likely to be entirely different to those required of an attorney looking after your personal financial affairs.

Why make a separate BLPA?

If you suffer an unexpected accident or illness that removes your mental capacity to act, in the absence of a properly executed Lasting Power of Attorney, there is often little choice but for an application to be made to the Court of Protection seeking the appointment of a Deputy to manage those affairs.

Applications to the Court of Protection can take, on average, six to seven months and in the intervening period there would be no person authorised to manage your affairs. Financial institutions will often freeze bank accounts to protect you whilst a decision is made, a consequence that could be devastating to your business when you consider the day to day financial transactions that can be central to the operation of the business and even its very existence. Payments to staff, suppliers and financial institutions may all be affected.

In addition, if you operate as anything other than a sole trader, the risks may extend to your business partners or co directors. It may even be the case that, where you are operating business accounts jointly with others, those accounts are frozen by financial institutions.

Ultimately the situation could lead to a risk of business failure or winding up.

Sole Traders

You are the business. If you do not make provision for periods of absence, whether planned or unplanned, there is a significant risk to your business’s ability to operate without you.

Partnerships & Limited Liability Partnerships

If you are a partner in a partnership you should review the partnership agreement in place as it may contain the provisions that will come into play if you lose mental capacity.  Beware though, provisions in an agreement which purport to remove partners who lack mental capacity may fall foul of equality legislation.

Company directors

Changes to legislation in recent years aim to support directors and others to remain in their roles despite issues associated with mental health. This means that applications to remove directors who lack mental capacity, or the use of company articles which include provisions for a director to give up their role without due regard for the legislation, may give rise to potential discrimination claims.

Ideally, a BLPA created by each director will serve to protect the company’s interests and avoid discrimination claims and regularity investigations.

The benefits of having a BLPA

Essentially a BLPA gives your attorney the ability to continue the day to day operation of your business.

By risk managing and planning ahead, you can create a BLPA that appoints an individual of your choosing, someone who has the necessary understanding, skills and ability, and who understands your particular business. That person is known as your attorney and, if the worst were to happen, is on hand to handle the day to day affairs or your business.

A financial and property attorney for business affairs will be authorised to deal with the business accounts, any assets and investments of the business, and enter into (or otherwise deal with) contracts on behalf of the business. They may continue to pay staff and access accounts, as well as dealing with suppliers and financial institutions.

The sale of a business interest.

As a business owner, if you are deemed to lack mental capacity then you may be unable to give a valid receipt when it comes to the sale of any interest or shares in the business. Without a valid receipt, any purported sale becomes tainted.

The existence of a BLPA which appoints a business attorney would prevent this and mean that a suitably skilled attorney is on hand to facilitate the transfer and give valid receipt.

Who do I appoint?

Whilst you should have a personal LPA in place covering your personal finances, it is unlikely that a personal attorney would be the right person to act as a business attorney. Indeed it can often be the case that commercial practice, legislation and conflict of interest mean that a business attorney should be a separate person to a personal financial attorney.

If your business is part of a regulated sector or your partnership agreement or articles of association require it, it may be mandatory to ensure that your business affairs are handled separately to your personal affairs.

Redkite’s experts are on hand to guide you through the considerations you should have in mind when choosing your attorney. Importantly, it should be someone who is familiar with your business and someone in whom you trust.

Your attorney must fully understand the role they may be required to take on and agree to it, an attorney who acts without the necessary competency or skill may be the subject of litigation.

Your choice of attorney is an extremely important one and one that we can discuss in detail with you as part of your risk management strategy.

How do I create a BLPA?

Call us today to discuss the making of a BLPA and a general review of your business’s risk management policy.

Accurate and expert advice and drafting is key to creating an effective BLPA that will provide peace of mind to you and any fellow business associates.

Once drafted, in order to be effective and available for use, a BLPA must be registered with the Office of the Public Guardian; a process that we can handle on your behalf in finalising your BLPA.

 

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