We have recently seen an uptick in the incorrect use of Attorney powers in a Financial Enduring Power of Attorney. A common mistake is that the Attorney believes, or is wrongly advised by an accountant, conveyancer, or lawyer, that they can use the Financial Attorney powers to make decisions on behalf of the principal, in their role as a director of a company. What’s required for this situation, is a Company Power of Attorney.
What power does a Financial Attorney have?
Appointing a person as your Financial Attorney allows that Attorney to deal with your “personal/individual” legal and financial affairs. This means they can access your bank accounts, sell your house or investment properties, and even start legal proceedings on your behalf. It does not allow them to have decision-making powers you hold as a director of a company.
What is a Company Power of Attorney?
A Company Power of Attorney (also called a Corporate Power of Attorney), is a document created by a company. It appoints a person(s) or another company to act on its behalf and to sign documents on the company’s behalf. This person or company is referred to as the Corporate Attorney.
The primary purpose of a Company Power of Attorney is to ensure smooth operation of company affairs in situations, for example where a director:
- is away (overseas for example);
- loses capacity (due to illness or an accident); or
- dies and the probate or administration of the estate has not yet been finalised.
Why do I need a Company Power of Attorney?
For sole directors
If you are a sole director of a company, it is particularly important that you consider what would happen to your company in the event that you were unable to act due to injury or ill-health.
If you had a Company Power of Attorney in place, your company and any business operated by the company could continue to operate if you are unable to act as a director. Like an Enduring Power of Attorney that a person makes, the Corporate Power of Attorney can specify that the document only becomes operational in the event that the director loses capacity to act.
Where there is more than one director
If you are a director of a company where there are two or more directors appointed, considering having a Corporate Power of Attorney in place is equally important.
Under s. 127 of the Corporation Act 2001 (Cth), a company with two or more directors, must sign documents by having either two directors or a director and the secretary sign documents. If one director, who is also the secretary is unavailable or has lost capacity, then the Corporate Attorney could sign on their behalf.
The ability of a company to sign documents is vital for the smooth and continuous running of any business. Important documents which may regularly require signing include:
- Tax returns;
- Employment Contracts;
- Business Purchase or Sale Contracts;
- Property Purchase or Sale Contracts;
- Supplier Contracts.
Who should a company appoint as the Corporate Attorney?
The company should appoint a trusted person over the age of 18 years, who they believe is competent to perform the role of Attorney if required.
A company may appoint another company as their Corporate Attorney.
What power does a Corporate Attorney have?
A Corporate Attorney can be appointed for a specific purpose or limited purpose. Or, alternatively, the company can give the Corporate Attorney broad powers to act on behalf of the company.
Perhaps a director is going overseas for several months and they wish the Corporate Attorney to complete a transaction by signing certain documents on the Company’s behalf? They may appoint the Attorney for that specific purpose, noting the specific documents to be signed.
Or perhaps a director is about to undergo significant surgery and ongoing medical treatment. They would appoint a Corporate Attorney for a specific time period. In this instance, a company can give the power to the Corporate Attorney to make day-to-day business decisions on behalf of the company, for a specific time period.
The company may choose to limit the Corporate Attorney’s Power by either specifying transactions or decisions that the Attorney cannot make or specifying transactions and decisions they are required to make.
A Corporate Attorney is not allowed to perform duties that cannot be delegated by the company. A Corporate Attorney cannot assign the duties given under the Corporate Attorney, to another person.
Like an Attorney appointed for a person/individual, the Corporate Attorney must:
- act honestly and in good faith;
- act in the best interests of the company;
- keep proper accounting and financial records; and
- not enter into a conflict transaction - i.e. must not act to benefit themselves without explicit permission from the company.
The risks of incorrectly using a Financial Power of Attorney in place of a Company Power of Attorney
A recent example of a Financial Power of Attorney (a document for personal/individual us) being improperly used, is highlighted in this case our firm recently dealt with.
- Our client purchased an investment property at auction.
- The vendor’s statement showed that a “Company Pty Ltd” was listed on title as the sole proprietor.
- However, the Contract of Sale was signed by the director’s personal Financial Attorney.
- This personal Financial Attorney has no power or authority to sign on behalf of the director.
- The wholesale and auction could now be void.
This Attorney, under the Enduring Power of Attorney (financial), can only act for their principal’s personal financial matters. They cannot step into the shoes of that person, as a director of the company.
Get help from an estate planning lawyer
Many people seek to prepare a Will and Enduring Powers of Attorney to ensure that their personal estate is managed to benefit their loved ones (either when they die or lose capacity). However, any company which operates the family business, can often be overlooked.
It is important to look at every person and entity in estate planning, to ensure that when a key person dies or is incapacitated, trusted people are ready to step in and operate your business, to look after those you love.
Get in touch with one of estate planning lawyers to review what you’ve got in place to protect your personal and company interests.
Contact David Davis Lawyers
Phone: 03 9014 1299
Email: admin@ddavis.com.au
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