Since the Mental Health (Discrimination) Act 2013 was implemented, it is not possible for a director to be removed by the court if they have mental health concerns, including if they have lost mental capacity, as this would be considered discrimination.
By creating a Business LPA in advance, directors can ensure that other people can make decisions on their behalf for the business after they have lost mental capacity.
A Business LPA, also sometimes known as a Commercial LPA, is a Property and Financial Affairs LPA restricted to only give the attorneys authority over businesses of the donor. It will allow the attorneys to make decisions regarding that business if the donor loses capacity, or alternatively whilst the donor still has capacity.
Why make a Business LPA?
A person without capacity cannot enter into lawful contracts; sole traders will no longer be able to sell goods or services, and partnerships or companies, could be destabilised.
If a person who is a signatory to a business account loses capacity and does not have a Business LPA in place, the bank will freeze that account, which increases the risk that loans or overdrafts could be recalled. An application would need to be made to the Court of Protection to remove that person as a signatory. This process can take anything up to 2 years to allow an attorney to take control of the business assets with associated costs of c £1,000. Can any business really afford to wait this long?
Consideration when making a Business LPA
Any relevant business documentation would need to be consulted. For example, any partnership agreement or the articles of association would need to be reviewed to ensure they do not contain any terms that would prevent an attorney from acting.
As always, the appointment of attorneys needs to be carefully considered. The appointment needs to be based not only on trust, but also if they can deal with your business. You will need to consider if your chosen person is familiar with your business, or at least the market of the business, to ensure they act in the best interest of you and your business.
The creation of the Business LPA should be treated as a business expense and therefore should always be payable from the business.
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