Protect Your Practice - Do You Have a Lasting Power of Attorney?

A Lasting Power of Attorney (LPA) is a document whereby an individual appoints an attorney to act for them in relation to their finances.

This usually occurs if the individual is incapacitated - either physically or mentally - or otherwise unable to deal with their affairs.

Although LPAs are quite common for personal use, they can be made specifically for business interests as well. In the case of a sole practitioner especially, this may be very helpful in the event of illness or other absence.

Unforeseen Circumstances

Mrs Cromwell is the owner of veterinary practice which has two employees. She is the only signatory on the practice's bank account, and the insurance policyholder and signatory for all of the practice's contracts.

Although Mrs Cromwell signed a General Power of Attorney to enable one of the employees, Mr Fairfax, to sign on her behalf if she is away, she does not currently have either a personal or a business LPA in place.

Unfortunately, Mrs Cromwell is involved in a serious car accident and is taken to hospital in a coma.

The Implications of Not Having an LPA

As Mrs Cromwell is in a coma, she currently does not have capacity to make any decisions. Although Mr Fairfax is appointed under a General Power of Attorney, this can only authorise him to act whilst Mrs Cromwell has capacity to make decisions herself. It would be suitable for holiday cover for example, but the authority of this kind of power of attorney ends with Mrs Cromwell's loss of capacity.

Had Mrs Cromwell made a personal LPA in relation to her finances, whoever she appointed in it would also be authorised to deal with the business (unless that had been excluded). Whilst this would have been helpful to Mrs Cromwell, it might not be what she intended, as the person appointed to deal with personal finances (often a close family member) may not be the best person to run the practice.

What Are the Risks of Not Having a Business LPA (BLPA) in Place?

• The practice's bank accounts will be frozen, which means that the employees, and any other regular expenditure for the practice, will not be paid.
• Insurance policies and contracts will become void or invalid.

Therefore, no one is authorised to make any business decisions, and as a result the practice may fail.

In this situation, the only option available is for someone (perhaps a family member or Mr Fairfax) to apply to the Court of Protection for a deputy to be appointed, who basically fulfils the same role as an attorney. 

There are, however, two issues with this option:

• the process can take over six months to complete
• the practice owner has no say in who is appointed, and it may be that someone they consider unsuitable is successfully appointed by the court

Considerations for Sole Business Owners

It is worth noting that an attorney appointed by a BLPA is only authorised to deal with decisions concerning the running of the business and not its day to day work. The first purpose of appointing an attorney is to ensure the seamless continuation of the business during a temporary absence. An attorney would be able to ensure that managerial level decisions can still be taken, such as paying staff, and entering into contracts.

If Mrs Cromwell was not expected to regain her mental capacity and return to work, the role for the attorney would be to ensure the smooth running of the practice until it could be sold or taken over, and to deal with those matters on her behalf.

How Can We Help?

Business LPAs can offer you and your practice essential peace of mind, providing an 'insurance policy' that will hopefully never be needed. We recommend our clients incorporate BLPAs as part of their crisis management plan to help reduce any risk to the business in unforeseen circumstances.

Our Private Client, Healthcare and Employment teams work together to provide tailored advice to you about your practice.

We can provide comprehensive advice regarding BLPAs, including your choice of attorney and  the drafting of tailored guidance to ensure that the appointment is suitable and designed for your needs.

For more information, please contact Associate William Hollins in our Private Client team on 020 7665 0905, or Rachel Crean, a Partner in our Healthcare team, on 07387 025973. Alternatively, please complete the form below.