Companies requiring a Power of Attorney
Whilst it’s not required by law, it might be important for a company to consider executing a ‘Company Power of Attorney’ (“CPOA”). This is particularly relevant for companies which are managed by a sole director.
A CPOA is a legal instrument which enables a company to appoint an individual or group of individuals to act on the company’s behalf.
The main rationale for appointing a CPOA is to allow a company to continue operating as usual in the event that a director becomes unavailable or incapable of acting on behalf of the company. This could involve circumstances where a director dies, succumbs to illness or is overseas.
Without a CPOA in place, a company could be left with its hands tied when attempting to engage in contracts, deals and organise its finances during the absence of a key decision-maker. As such, it’s widely recommended for companies to be proactive in making plans for any potential death or illness of a director. To state the obvious, if a sole director dies, the company does not die. However, until shares are transferred and a new director appointed, the company will be in limbo.
S124 of the Corporations Act 2001 empowers (but does not compel) any registered Australian company to execute a CPOA. Importantly, this person must be over the age of 18. Meanwhile, it is worth noting that another company or Trustee of a Trust may also assume the role under a CPOA.
Nonetheless, a company must still adhere to the rules stipulated under the Power of Attorney Act 2014 (Vic) (or the relevant state legislation) when executing a CPOA.
The same expectations associated with an individual’s Power of Attorney also apply to a CPOA. These include, but are not limited to, a duty to act in good faith and in the best interests of the company. However, for clarity, if X is a sole director of Y Pty Ltd and X has executed a (personal) Enduring Power of Attorney appointing Z as attorney, Z cannot use that power to act on behalf of Z Pty Ltd.
Directors requiring a Will
If you are a sole director of a company and are yet to create a valid Will, this has the potential to cause a host of complications in the event of your untimely death.
Unlike a situation where surviving directors can continue to manage a company on an interim basis upon the passing of a fellow co-director, the death of a sole director (who dies without leaving a valid will) can leave a company without any authorised person to oversee its operations for a substantial period of time.
This risk is consistent with the time-consuming nature of applications for letters of administration in which a close relative of the deceased sole director may apply to the Supreme Court for control over the management of the estate.
Meanwhile, should the deceased not have any immediate relatives or other obvious people to deal with the estate, the Public Trustee may, as an alternative, administer the estate. Nonetheless, this process can also take several months.
These types of delays can prove highly problematic for a company in its day-to-day operations. Without an individual who is fully authorised to act on behalf of the company, trading could become difficult if not impossible. It might also lead to, among other repercussions, staff and suppliers not being paid, tarnishing the reputation and value of the company.
It is therefore recommended by ASIC for any sole director or shareholder of a company to have a Will, making specific provision for any beneficiaries of their shares in the company. The new shareholder, being the beneficiary under the will, may be able to take steps to protect the company.
In Summary:
If you are considering making a Will or appointing a Company Power of Attorney, you can contact our office on 03 9450 9400 for a confidential discussion.