A Power of Attorney is where a person, as the Principal (sometimes called the Donor or Grantor) gives another person (the Attorney) legal authority to act on behalf of that person in that person’s absence, whereby the Attorney is enabled to manage a person’s personal and/or financial affairs.
There are two types of Powers of Attorney in NSW, ordinary powers and enduring powers of attorney. Only the latter will continue if you lose the mental capacity to make decisions. Ordinary Powers of Attorney will cease to operate if this occurs. As a result, many older people incorporate an Enduring Power of Attorney into their Estate planning arrangements, to ensure their property and financial affairs will be taken care of.
We recommend every person should execute an Enduring Power of Attorney. However, having an Enduring power of Attorney has limitations.
What are the limitations?
Firstly, if a person is voting at a meeting of members of a Company, pursuant to a Power of Attorney, the Power of attorney must comply with Sections 250A and 250B of the Corporations Act 2001 (CTH) which are the requirements for a valid proxy.
Section 250A provides:
“Appointing a Proxy
(1) An appointment of a Proxy is valid if it is signed, or otherwise authenticated in a manner prescribed by the regulations, by the member of the Company making the appointment and contains the following information:
(a) the member’s name and address;
(b) the company’s name;
(c) the Proxy’s name or the name of the office held by the Proxy;
(d) the meetings at which the appointment may be used.
An Appointment may be a standing one.
(1a) The regulations made for the purposes of sub-section (1) may prescribe different requirements for the authentication of an appointment given by the company by different means (electronic or otherwise).
(2) If a company has a Constitution, the Constitution may provide that an appointment is valid even if it contains only some of the information required by sub-section (1).
(3) An undated appointment is taken to have been dated on the day it is given to the Company.
(6) An appointment does not have to be witnessed.
(7) A later appointment revokes an earlier one if both appointments could not be exercised at the meeting.”
Secondly, the Principal cannot authorise an Attorney to act for the Director because the role of the Director is a personal role. In Mancini v Mancini [1999] NSWSC 799, Bryson J said:
“The office of a director is a personal responsibility, and can only be discharged by the person who holds the office. If there is any exception, it must be found in the constitution of the company and in some authorisation there found to act by an alternate or other substitute or delegate. The office of a director is not a property right capable of being exercised by an attorney or other substitute or delegate of the person holding the office; many rights as shareholder can be distinguished in this respect because they are rights of property.”
The Company may grant a Power of Attorney, and the Attorney can act for the Company. However, the individual Director cannot.
There is a statutory exception in relation to self-managed Superannuation Funds. Self-managed Superannuation Funds require that the Trustees, or all of the Directors of the Corporate Trustee are members of the Superannuation Fund or a relative of a member. This causes a problem if there is a sole member/sole Director Superannuation Fund, and the sole member has a legal disability. The member cannot act as a Director or Trustee because the member does not have the capacity, but the member cannot delegate the member’s Director’s role or Trustee’s role because it is personal. The Superannuation Industry’s Supervision Act provides that a fund may still be a Self-managed Superannuation Fund, if the member has a legal personal representative who acts as Trustee or Director of the Corporate Trustee whilst the member is under a legal disability or if the legal personal representative has an Enduring Power of Attorney (Section 17A)(3)(b) Superannuation Industry Supervision Act 1993).
Under Section 10 of the Superannuation Industry Supervision Act 1993 a personal representative is defined to include a Trustee of the Estate of a person under a legal disability or a person who holds an Enduring Power of Attorney.
The illness or death of the Chair of the Board of a Company, CEO, CFO, or sole or key Director is a foreseeable organisational risk. The way that person has structured their affairs may jeopardise the continued viability of the business of the Company. Effective Estate planning is a critical component of many business risk management.
For further information or advice concerning Powers of Attorney, contact the experienced team at Rockliffs Lawyers today.