If any of your clients runs a business and acts as the sole
director or one of the directors of a company, their estate plan
should also address who should act as director in their place in
the event of mental incapacity, physical incapacity or death.
It is important to know that your clients' enduring power of
attorney or Will may not provide sufficient protection and the best
outcome for them.
WHY? In case of mental incapacity, there is a
common misconception that a person appointed under an enduring
power of attorney can simply step into a person's shoes as the
director of a company. Because an attorney is only authorised to
make decisions concerning the appointing person's personal
financial affairs, this is not the case. As the company is a
separate legal entity, its financial decisions do not concern a
person's personal affairs but only the financial affairs of the
An attorney may become or decide who becomes a director of your
clients' company via their shareholding. However, this only
Your client is the majority shareholder of the company; or
If your client is not the majority shareholder, the other
shareholders consent to the appointment.
A further disadvantage is that your clients will not have any
say as to who is appointed as a director in their place but rather
the attorney makes this decision.
As you may know, an enduring power of attorney ceases to have
effect upon the appointing person's death.
Generally, the executor of your clients' Will is authorised
to administer the estate upon grant of probate. To obtain a grant
of probate may take between two to six months from a person's
date of death. During this time, no one is authorised to act as
director of your clients' company. This may cause problems in
particular for sole director companies or for companies which
require at least two or more directors to act. Such insecurity for
a company may exist even longer if your clients do not have a
In this instance, a family member of your clients needs to apply
for a grant of letters of administration. The requirements to
support such an application may result in a costly and time
In circumstances where time is of the essence, for example in
business or property transactions, any delay in executing documents
may have serious financial consequences for the company.
SO WHAT NOW? The solution to avoid the above
difficulties is to appoint an alternate director or directors to
act in your clients' place in the event that they are unable to
do so by reason of either loss of mental and/or physical capacity
An alternate director would be authorised to exercise all the
powers of the appointing director as soon as any of the conditions
connected with the appointment are satisfied.
The appointment of an alternate director allows your clients to
choose a person whom they trust to continue the day to day business
of their company in accordance with their wishes, as well as to
determine the terms and conditions as to when the appointment
WHAT SHOULD YOU DO? Discuss the above
difficulties with any of your clients who are directors of a
company and the possibility to overcome these difficulties by
appointing an alternate director.
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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