Introduction

Why would a company need a power of attorney?  Arguably, a company doesn’t live and therefore just keeps on going (pending liquidation or wind up).  However, as every company director knows, the decision making and sign off responsibility is solely at the feet of the directors who run the Company.

For small companies, especially sole director companies, the issue becomes more acute if the sole director of a Company becomes unwell or dies.  Without properly empowered persons (usually directors) the business of a Company cannot be transacted. Contracts can’t be made, deals can’t be finalised, finances may be frozen and overall decision making in the company may stall.

One possible solution to avoid such a mess is the Company Power of Attorney.

What is a Company Power of Attorney?

A Company Power of Attorney is a legal instrument whereby the Company appoints someone to act on its behalf and do things for the Company (such as sign contracts) especially in circumstances where the director(s) are unable or incapable of doing so, for example by virtue of the director being injured, of ill health or having passed away.

The Company as the ‘appointer’ can appoint any adult person to do things on its behalf. The ‘attorney’ can only do those things it is empowered to do under the Power of Attorney document. When exercising those powers, the ‘attorney’ must act at all times in the best interests of the Company.

Importantly, a Company Power of Attorney is granted by the Company and must therefore be validly signed and approved by the Company. To be valid, the power of attorney must be in the form required under the relevant state laws (for example, Power of Attorney Act (NSW) 2003) and signed by the director(s) in accordance with Section 127 of the Corporations Act.

A director is not able to appoint someone else to act as director via a personal power of attorney.  It is not permissible for a director to delegate their duties as a director. Therefore, the only way to properly empower someone on behalf of the Company is by way of a Company Power of Attorney.

What Happens if a Sole Director Dies without a Company Power of Attorney?

In circumstances where the company is run by a sole director and shareholder, and that person dies or cannot manage the company because of mental incapacity, then a ‘legal personal representative’ can either appoint themselves or appoint another person as the director of the Company (as per Section 201F of the Corporations Act).

The key point is that given the ‘legal personal representative’ can make that appointment, the person who is the ‘legal personal representative’ must be first appointed to that role.  That process, usually by way of probate or letters of administration, can take time (3 – 6 months) unless a special application is made to the Court for a Special Grant of Administration.

Under the provisions of Section 74 of the Probate and Administration Act (NSW), the Court can make an urgent Order allowing a person or persons to act in the capacity as Administrators on behalf of the deceased if it is convenient for them to do so. The Special Grant of Administration is made for the purposes of protecting the asset or particular assets where the delay in obtaining a normal grant would endanger those assets.

In the Estate of Frumar (2016) NSWSC 1116, the key asset of the Estate was in relation to the on-going practice of an Ophthalmic Surgery operated by the deceased who was an Ophthalmic Surgeon. The evidence before the Court showed that it was necessary to sell the practices as quickly as possible in order to preserve their value for an incoming Ophthalmic Surgeon.  The Court was satisfied that in the event that the practices were not sold the value of the Estate would decline and potentially would become insolvent. It was therefore in the interests of the beneficiaries and creditors of the Estate that there be an appointment of a Special Administration that the assets be realised.

Take Out

As part of prudent business planning, it is important for the directors of all companies to consider what contingencies they have in place in the event of a directors’ ill health or death. If the company has a sole director, it is strongly recommended that the Company establish a Company Power of Attorney to ensure ongoing decision making powers are in place for the Company in circumstances where the director is unable to make those decisions.

If you would like to discuss a Company Power of Attorney or require more information please contact: Heath Adams Director-Lawyer.

Written by Heath Adams.

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