Introduction

A Lasting Power of Attorney (or LPA in short) is a legal document that a person signs which allows him to choose one or more persons to make decisions on his behalf when he or she lacks mental capacity. Such person or persons appointed can make decisions on the mentally incapacitated person’s health and financial matters.

While most people utilise the LPA to direct how his or her personal life is going to be after he is mentally incapacitated, the LPA may also prove to be a useful tool in protecting business owners in the event they become mentally incapacitated.

Benefits of an LPA for Business Owners

Even though your family members may be the closest to you and understands what is in the best interest for you, they may not be the best candidate to run your business for and on your behalf. In such a case, you may choose to appoint someone else such as an accountant or an employee that you trust to act on your behalf in this aspect.

In addition, those who are appointed cannot pass their authority to someone else. They may however, seek professional advice in making their decisions. This protects incapacitated business owners in a sense where this authority to direct a business cannot be transferred to another without the business owner’s authorisation.

A business owner may also limit the powers of what the appointed person or persons can or cannot do through the LPA. This can be seen in the case of [2020] SGFC 37.

Facts of [2020] SGFC 37

In this case, the parties to the dispute are 2 sisters. Their father, the owner of a funeral parlour business, executed an LPA appointing the 2 daughters as his donees and they were to act jointly and severally in all decisions relating to the personal welfare and property and affairs of the father should he loses mental capacity.

A point to note here is the elder sister had for a long time prior to this dispute been helping her father out in his business, while the younger daughter had not been involved in the father’s business.

After the father suffered a stroke, the elder sister, acknowledging that her father had no mental capacity to manage his property and affairs, sent to the younger sister a draft deed seeking that the latter agree to a transfer of 30% of the ownership of the father’s business.

After the younger sister declined the request, the elder sister brought the father to a law office to sign a Power of Attorney (For your information and for those that are unaware, a Power of Attorney is a different legal document from the Lasting Power of Attorney in that a Power of Attorney is created by a person to appoint another person to act for and on his behalf whereas the LPA only kicks in when a person loses mental capacity) and a Statutory Declaration, enabling the transfer of his interests in the business to herself. The elder sister also converted the business, which was a sole proprietor firm, into a private limited company and appointed the elder sister as the director and sole shareholder of the new private limited company.

The elder sister also utilised the business’ money to meet personal expenses, including gifts. This was explicitly not allowed in the father’s LPA.

The younger sister was not informed of this. On finding out, she then proceeded to take out the current court application and sought an injunction to stop, inter alia, the defendant from engaging in business under the name of the new private limited company and using any monies from their father’s bank accounts.

The younger sister sought the removal of her elder sister under the LPA. The younger sister also sought to act solely with regards to all matter relating to the personal welfare and property of her father. She also sought the conversion of the private limited company back to a sole proprietorship and the return of the status of their father as the sole proprietor of the business. The elder sister objected and insisted that the business be retained as a private limited company and sought to provide evidence of the position that this was advantageous to the business. She was also of the view that the Power of Attorney and the Statutory Declaration were also valid.

Judgment

It was decided that the private limited company be reinstated and operate as a sole proprietorship, and that the Power of Attorney and Statutory Declaration is deemed invalid. However, it was decided that the LPA shall remain in force.

In areas relating to the management of the business, the judge held that the parties shall work together and each shall be at liberty to make decisions which are aimed at furthering the interests of the business provided the other is kept informed and written consent obtained. In the event parties are unable to reach agreement on any aspect of the management of the business, the plaintiff shall be entrusted with the decision. This decision respected the father’s wishes who, in his validly executed LPA, intended for his daughters to attend to all matters relating to his personal welfare and property and affairs jointly and severally.

Reasoning

This case shows how the laws set up to care for an aged parent who has lost his ability to decide on matters regarding his personal welfare and property and affairs. This is true for many applications under the Mental Capacity Act. As the judge aptly puts it, the LPA is often “misunderstood and looked at in much the same vein as a succession or inheritance matter – whether consciously or otherwise. The child sees no concern arising from using one parent’s money to meet varied financial concerns unrelated to the care and welfare of the parent so long as the parent is also catered for.”

It must emphasise that the relevant laws are designed to protect the vulnerable patient. While there is always a need to preserve the assets of the parent and enhance its value where possible, it should not be made priority. A donee of the LPA needs to prioritise the interests of the person he cares for. It should not be ancillary to other priorities.

In Court, none of the medical professionals stated that it was the intention of the father to have his business entity altered or for it to be taken over by either of his children. The limited issue where there was divergence was who was to manage the business. The judge concluded that while the elder sister for reasons of being more involved in her father’s business and knew the business better could well have been her father’s choice, the extremely vulnerable position in which the father was in made it extremely difficult to accept.

The defendant had taken numerous steps which clearly indicate that while she was intending to ensure that the needs of her father are catered for, an ancillary purpose was also being served. However, the LPA clearly reflected the father’s preference to have both his children united in the administration of his estate.

Since the elder sister was the one who assisted her father substantively in the past, she felt entitled to take on a larger role at this time – without the need to even inform her younger sister. While there was no doubt that the father would be catered for in a satisfactory manner, her role as the donee under the LPA however is not to manage the father’s affairs in a way that met different objectives. The acts leading to the execution of the power of attorney and the conversion of the business entity speak of entitlement and not responsibility. The attempts at returning monies taken and of providing documentation were clearly acts in response to legal proceedings and had little to do with the sincerity called of a donee of powers under the LPA. The act of converting the business without even informing the plaintiff speaks of disregard and unilateral decision-making.

It was clear from the terms of the LPA that the father expected a united front. It was inferred that the father would have wanted the business to continue but not for it to be continued at the expense of his own interest. The fact that the elder sister views his interest to be aligned to hers (that she can manage monies in a way which supports her expenses) would be a wrong reading of the facts and would be dangerous to the preservation of the father’s interests. At the end of the day, the LPA needs to ensure that the father’s interests are safeguarded.

Implications of not having an LPA

On the other hand, the implications of not appointing a donee may be devastating for businesses. In addition to the lack of protection provided by the LPA, in the event a business owner becomes mentally incapacitated, the business may be left with no one in a position to manage its finances and day-to-day operations. In such a case, one must take out a court application to be appointed a deputy, and such applications may take an upwards of six months or more. Given the extensive time needed for such applications, the business may in the meantime falter with no proper management. In such a case, it seems relatively simpler and more straightforward to address your business within your LPA so that you don’t have to worry about your business at a later stage of life.