It may be possible for an incapacitated individual’s family to muddle through managing personal finances while an application is made to the Court of Protection to appoint a deputy to manage their affairs but they are likely to experience difficulty and delay.
Deputyship applications can take up to six months, and the deputyship regime is costly and bureaucratic.
If an individual is the sole director of a business, or a sole trader, their business bank accounts will usually be frozen when they lose capacity and they will be unable to enter contracts or appoint other directors to take on their functions.
The court could be asked to make an emergency order but this can be stressful and costly and without guaranteed success.
It is, bluntly, unlikely there will still be a business to run by the time a deputy has been appointed.
As a bare minimum any business owner, director, partnership member or shareholder with voting rights should have a financial LPA in place. Ideally they should have a business LPA.
Characteristics of a business LPA
A business LPA is specific to an individual’s role within a particular business.
A businessperson with interests in multiple businesses would usually make separate LPAs for each of those interests.
The appointment of suitable attorneys (see below) is vital but so are the instructions that govern the extent of their powers and the way they must be exercised.
A business LPA is not an “off-the-shelf” document.
The LPA can include non-binding preferences to help attorneys exercise their powers in a way that meets the donor’s wishes.
It should also include legally binding instructions setting out the business decisions with which attorneys are allowed to deal, and those areas in which they do not have authority to act.
Attorneys are appointed to make management decisions on behalf of the donor, not to take over their job.
The exact scope of the attorney’s role will be specific to the donor’s business.
The attorney could instruct existing employees to perform key tasks or employ new people if there is a skills shortage.
The attorney would be responsible for complying with any professional regulatory requirements and may need to be noted as a person with significant control on the Companies House records for the business.
Interaction with company law
Lasting powers of attorney are governed by the Mental Capacity Act 2005 while companies are governed by the Companies Act 2006. The two do not always co-exist harmoniously.
Companies might, for example, have articles of association that mandate the removal of directors who lack capacity, or that do not allow for the appointment of “proxy” directors (including attorneys).
Similar situations can occur with partnership agreements.
