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Work-Life Balance and Business LPAs

21 May 2020

The pressure of an increasingly demanding work culture, coupled with the cumulative effect of increased working hours, is a pressing challenge to the mental health of the workforce in the UK.

Within our places of work, and within our social networks, there will be individuals living with mental health problems, keeping their heads above water but staying afloat nonetheless.

One in six of us will experience a mental health problem in any given week and with the theme of kindness being pervasive throughout this week’s Mental Health Awareness campaign it may just be worth picking up the phone or dropping an email to a friend or colleague, just to make sure that they are doing okay, especially during this difficult period of lockdown.

As a business owner, whether you are a sole trader, partner or company director, it is important to consider who would deal with the financial affairs of your business and ease day-to-day management should you become unable to make commercial decisions yourself.

With regards to business continuity planning and crisis management, who would authorise the payment of invoices, negotiate business contracts or service business loans if you had an accident or had a medical condition that incapacitated you?

If you own a business and lose mental capacity the consequences could be far-reaching for your business.

In order to protect the interests of you as the business owner, together with those of the business, a simple solution is to make a Lasting Power of Attorney (“LPA”). I have already touched upon LPAs generally in my previous articles this week, however, it is hugely important to obtain appropriate advice when planning for the future, both with regards to personal and business matters, especially when the two are not mutually exclusive, as is the case with family businesses.

Whilst appointing a spouse as attorney under an LPA may be appropriate to make decisions about personal matters, they may not be the best person to make decisions with regards to business interests. A business partner, co-director or co-shareholder may instead be better suited to make decisions relating to the business.

One way to deal with this is to therefore consider entering into two LPAs, one limited to making decisions about business interests, and another for all other financial decisions, allowing the most appropriate person to be appointed to make the respective decisions.

Business LPAs may also assist in combatting various crisis scenarios such as having a delayed flight due to events outside your control (such as the coronavirus), or if you had an accident abroad, leaving you in a hospital bed where you were in no fit state to make business decisions.

Where a business owner lacks mental capacity and no business LPA is in place, it is likely that an application to the Court of Protection will be required in order to appoint a Deputy.

An application will not only prove costly, but is likely to take a significant amount of time, exposing the business to various risks as there is unlikely to be an individual who can make key decisions on behalf of the business during this period; contracts may be lost if no one has authority to negotiate or sign on behalf of the business, paying invoices or wages may become difficult and the business owner’s family may become directly affected if they are reliant on income from the business.

 

Sole Traders

If you are a sole trader, your business is unlikely to have a separate legal entity from you. As such, appointing an attorney under a business LPA will be a useful way of dealing with business continuity and crisis management in the event that you are mentally incapacitated.

Partnerships

If you are a partner in a partnership it is important to check the terms of the partnership agreement to see whether there are any provisions dealing with a partner becoming incapacitated. If this is the case, an LPA may not be required. However, if no such provision exists, and you decide to implement a business LPA, it is important to take professional legal advice to ensure that the business LPA does not conflict with any other aspects of your partnership agreement.

Company Directors

As with partnerships, it is important to check the company’s articles of association if you are a director of a company. Often, and in order to protect the company’s interests, the articles of association would provide for the termination of a company directorship due to a loss of mental capacity. If there is no such provision, it is important that you seek legal advice and consider including this as a provision within the company’s articles of association.

On the other hand, if you are the sole director of a small private company, it is unlikely that the articles of association will terminate the director’s appointment; otherwise there would be no one to run the company. In such circumstances, it would be appropriate to consider a business LPA.

If you decide to put in place an LPA it will need to be registered with the Office of the Public Guardian. Once registered the attorneys will have power to enter into transactions that are within the ambit of the LPA so that they can effectively deal with business decisions if you are unable to do so.

Whilst you are still mentally capable, your attorneys should only do what you authorise them to do, and it is only when you become mentally incapable that your attorneys will be able to make decisions on your behalf. It is therefore important to consider giving specific detailed instructions to your attorneys in relation to the powers they would hold.

At Hay & Kilner, a multi-disciplinary approach can be taken between our expert advisers within the Private Client and Corporate departments of the firm when advising business owners about both their personal and business affairs. For more information on any of the above, or how we can help you or your business, please contact Tom Bridge at tom.bridge@hay-kilner.co.uk or on 0191 232 8345.