Business lasting powers of attorney (LPAs) allow the donor (the business owner) to appoint a suitable attorney to make decisions concerning their business interests when they are unavailable or lack mental capacity.
If there is no business LPA in place, certain risks arise. For instance, if one of the bank account signatories lacks capacity the bank can freeze the account to protect the now vulnerable adult. If there is an overdraft, the possibility of the bank freezing the account is greater. With solicitors or other regulated professions as business owners, if they lack capacity there could be professional implications resulting in their regulatory body intervening. Contracts entered into by a person who had capacity but now lacks it may become unenforceable owing to their incapacity. Paying creditors, employees or tax becomes difficult as does running the business generally with a businessperson who now lacks capacity. Investors may require their investments to be returned. By appointing a business LPA attorney, these issues may not arise.
If there is no business LPA in place an application should be made to the Court of Protection to have a deputy appointed. This may take months or longer, during which time the business is exposed to uncertainty of survival.
Some businesses have undergone crisis management – identifying and preparing for probable risks, such as floods, computer hacks or theft. Fewer businesses consider preparations for significant business decision-makers being incapacitated. Schemes which provide for an ‘agent’ arrangement might be effective, albeit once the principal lacks capacity, following the rules that agency decisions may no longer be made on their behalf.
It is likely that many business LPAs may be used to formally retire the incapacitated business owner (donor) as this is in the business’s best interests. As the business owner now lacks capacity they may not be able to give valid receipt for the sale of their interest in the business, which their attorney can do on their behalf.
Making a business LPA
When drafting business LPAs, research I have been conducting since 2011 has found solicitors should consider the following issues:
- What sort of business does the donor have (legislation affecting the advice is different).
- Examine intention when making the business LPA.
- Mental capacity is issue-specific. It is no longer asking only ‘does the donor understand the value of money?’ It is asking ‘do they understand the nature and type of their business?’
- Advising on how to choose an appropriate business attorney.
Choosing an attorney is not a simple process, particularly when choosing a business attorney. The MCA Code of Practice 7.8 reminds donors when choosing an attorney to think carefully. An attorney should be someone who is trustworthy, competent and reliable. They should have the skills and ability to carry out the necessary tasks.
When choosing a business attorney questions arising include:
- Do they have the necessary skills or abilities. How have they demonstrated this?
- Do regulations or case law prevent their appointment?
- Are there conflicts of interest between a personal LPA attorney and the business attorney?
If the personal LPA attorney is unsuitable, there could be a family dispute. With business attorneys their decisions may affect the business’s profitability. In partnerships this could result in the other partners bringing a claim against the donor who appointed the attorney, owing to their unsuitability. If the donor received poor advice when choosing their attorney, this may have professional consequences for the adviser.
To aid solicitors I have investigated decision-making and attorney choice at King’s College London.
Health and welfare deputy applications
My research in 2016 examined why many health and welfare applications are declined by the courts. The following questions were investigated.
- Why are applications brought?
- How are they conducted?
- What evidence is presented?
- Are applications made with little chance of success?
A theoretical model was constructed using similar applications from different jurisdictions then tested here in England. Applying the model and research responses, the following themes emerged when making health and welfare deputy applications.
- Who is the best person to make decisions for P (person lacking capacity).
- How well does the proposed deputy understand P? How can they demonstrate they know P’s views?
- Are other decision-makers already asking the proposed deputy to make P’s decisions?
- The strength of the relationship between the proposed deputy and P.
- Healthcare professionals’ views of the proposed deputy – do they agree with their decisions?
- If the proposed deputy is taken out of the decision-making equation, how would this affect P and decisions made for them?
Following this model does not guarantee success. It depends upon the strength of the evidence, challenges made to applications and what is in P’s best interests. P is the vulnerable adult and their best interests are paramount.
Advance decisions and LPA interaction
Some clients make advance decisions (living wills) which may interact with their LPAs to decline certain types of treatment.
Analysis of the practical application of advance decisions by healthcare professionals shows they are likely to use them as guidance rather than follow them directly. Solicitors should be aware of how to advise clients to create workable advance decisions promoting autonomy. To improve the likelihood that the advance decision will be recognised as applicable often entails drafting it together with a doctor. Making sure it best describes what treatments to decline – and saying why – aids interpretation.
Solicitor Craig Ward is author of Lasting Powers of Attorney: A Practical Guide. His interview with Eduardo Reyes is available here.