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When a business owner, whether it be a Director, Partner or sole trader, loses capacity, the first hurdle is managing their retirement or removal from the business. If this is well managed, the business should be able to continue trading or be wound up or sold, as is best for those involved. However, this is very rarely the end of the story. This blog highlights wider considerations that anyone running a business, or advising business owners, should take into account.
Ongoing management of P’s assets
Exiting the business is not the end of the line. In fact, it is often just the start of a whole new chapter. P’s assets will need to be managed, and use to meet their needs. Estate planning advice may be needed. Assets may need to be sold. A Will may need to be made.
Lasting Power of Attorney
The simplest way of ensuring that any personal assets that P owns can be managed, including sale, and that their ongoing needs can be met, is by way of Lasting Power of Attorney. Any Lasting Power of Attorney must be registered with the Office of the Public Guardian, but once this is done, these documents can be worth their weight in gold. Not only will they ease the process of retiring or exiting the business, but attorneys will be able to act in any onwards sale of property or assets. Some people chose to have just one Lasting Power of Attorney for Property and Financial Affairs, that covers all of their financial assets. Some people chose to make two- one for their personal assets and one for their business interests. It can be helpful to take advice if your assets are complex, you are unsure about who to appoint, or you are thinking of making two financial Lasting Powers of Attorney, to ensure that the drafting of each complements each other.
However, one factor that is often overlooked is that where there is a conflict of interests between the outcome that the attorney wants, and P’s best interests, that Court of Protection approval is very likely to be needed. In family businesses, conflicts of interests are often encountered, for example a sale of part of the business by P to the attorney at preferential rates.
Deputyship
If P did not put a Lasting Power of Attorney in place, a Deputy for Property and Financial Affairs will almost certainly need to be appointed for P. This requires an Application to the Court of Protection. If a person doesn’t have an attorney or deputy, then their assets will not be able to be managed or sold, or used to meet their needs. A deputy often has more restricted powers than an attorney, and commonly they have to seek specific authority to buy or sell property, or enter into tenancies on behalf of P. This is something to bear in mind when making any Application for deputyship.
Property sales
Even where there is an attorney or deputy in place, it can often be the case that the Court of Protection need to get involved with the sale of any property belonging to P. This is because where a property is owned by two or more people, there is automatically a Trust in place. If P has a beneficial interest in the property, ie they are entitled to live there or receive proceeds from it being let or sold, and there is no attorney acting for them, then the Court of Protection will need to authorise a deputy or another responsible person to act on P’s behalf in any sale of the property.
Litigation
Occasionally, litigation arises as result of a significant change in the ownership of a business. This can be as a result of disputes over valuations of business assets, or litigation brought by a third party, for example for the recovery of a debt, or specific performance of a contract. In such cases, if P is personally involved in the litigation, and they lack litigation capacity, they will need a litigation friend appointed for them, and also, no settlement or compromise in respect of the litigation can occur without specific authority from the Court dealing with the litigation. This is confirmed within the Civil Procedure Rules 21.10.
Estate planning
An exit from a company can result in a very significant windfall for P. Any attorney or deputy acting on behalf of P will need to consider taking independent financial advice, legal advice, and instructing accountants to deal with any tax returns. The OPG has provided helpful guidance on this here.
Further, it may be that it is in P’s best interests to make gifts from their estate, to family members. There are very strict rules in place about what gifts attorneys and deputies can make without specific Court of Protection approval, and the OPG has also provided very helpful guidance on this.
Finally, it may be that P’s Will needs to be reviewed. As an attorney or deputy, whether P’s Will still is in their best interests is something that should be considered regularly. An example of when a new Will may be in their best interests is if there is a specific gift of their business assets within their existing Will, but those assets are no longer owned. In such circumstances, and if P lacks capacity to make a new Will, then a Statutory Will may need to be approved by the Court of Protection.
In summary, exiting the business may only be the start of a wider set of steps that need to be taken into account when a business owner loses capacity. Having a Lasting Power of Attorney in place can be a hugely helpful piece of the jigsaw. Do get in touch if you want to discuss any of the areas outlined above.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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