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For those who run a business or trust where a company structure is involved, having a company Power of Attorney can be an essential estate planning tool.

Have you considered what would happen to your company if you, as one of the directors (or worse, the sole director), are unable to continue in your role because you have subsequently lost capacity or passed away?

To illustrate the issues that may arise, we set out the example below.

Brian is the sole director of Widgets ‘R’ Us Pty Ltd. The company is successful widget-making business that employs 12 staff members.

Brian tragically becomes ill, losing his decision-making capacity and is no longer able to manage his own affairs or those of his company.

His wife Penny holds a comprehensive Enduring Power of Attorney to act for Brian. When she visits the company’s bank, however, she discovers to her horror that she is unable to operate the company’s bank account, pay employees’ wages, and may be unable to appoint a new director or to sell the company’s business.

So, what are the issues, and how can you overcome them?

Enduring Powers of Attorney for individuals

An Enduring Power of Attorney (EPOA) allows you to nominate an attorney (a trusted person) to act on your behalf – in specific ways as set out in the EPOA document. This may include the power to make financial decisions on your behalf. However, can an attorney use a director’s individual EPOA to make decisions on behalf of the company? The answer is no.

Under the financial powers outlined in a typical EPOA, an attorney can exercise the rights of the principal as a shareholder. An individual’s EPOA does not, however, give rights to an attorney to take on the role of the director, nor does an individual’s EPOA entitle the attorney to make decisions for the company – even if the individual is the sole director of the company in question.

A company making a Power of Attorney

Generally speaking, companies can make a Power of Attorney, provided its board of directors pass a resolution to that effect and sign a formal deed creating the Power of Attorney.

A company cannot make an Enduring Power of Attorney as only individuals (real people!) can make such a document.

The Power of Attorney that a company gives can be as wide or narrow as the board of directors choose. The Power of Attorney might be for a certain length of time, for a particular event or even just a particular property (i.e. giving an Attorney power to sell a particular property for the company). The Power of Attorney can be given to one or more persons who may or may not be officers of the company.

A company may be able to make a Power of Attorney in its capacity as a Trustee of a Trust. This may not be suitable in all circumstances and suitably qualified legal advice should be obtained prior to making such a document.

How can a company Power of Attorney be revoked?

A company Power of Attorney will be revoked upon the dissolution of the company – be that via liquidation resulting from bankruptcy, or via the consensus of its parties. A company Power of Attorney can also be revoked by a resolution of a company’s board of directors and the signing of a formal deed of revocation.

When should a company execute a Power of Attorney?

Ideally, a Power of Attorney should be executed when the company is first set up. This helps to ensure that, if – for any reason – a director loses capacity or passes away, the company’s attorney can act on behalf of the company.

Summary

Company Powers of Attorney can be useful documents in the day-to-day operation of a company. They become essential documents in cases where a sole director loses capacity or passes away.

When making an Enduring Power of Attorney for yourself, we suggest that you also consider whether it is appropriate to make a Power of Attorney for any companies that you control.

If you have any questions, or wish to discuss the needs of your company, get in touch with Anthony Simpson on (02) 6140 3263 or [email protected]