Understanding Powers of Attorney

Partners Legal Solutions

24-06-2024

Understanding Powers of Attorney

 

The applicability of a Power of Attorney is an important consideration for both individuals and companies. In this article we explain the most common types of Powers of Attorney and the roles they play.  

Individuals: Enduring Power of Attorney 

A Power of Attorney is a legal document that allows a person (the Principal) to nominate a specific person (or persons) who can make decisions on their behalf (the Attorney(s)).  An “Enduring” Power of Attorney (EPOA) gives an Attorney the power to continue to make decisions even after the Principal has lost their capacity to make decisions for themselves. Any family member, friend or person you trust can be an Attorney as long as they are at least 18 years of age. However, an Attorney cannot be insolvent under administration (i.e. bankrupt), or the Principal’s care worker, health provider or accommodation provider.1 

What types of decisions can an Attorney make? 

Depending on the terms of the Enduring Power of Attorney under which they have been appointed, Attorneys may be authorised to make decisions about all financial matters, all personal matters, specific matters, or a combination of these matters. 
 
A financial matter is any matter relating to the financial or property affairs of the Principal.  For example, paying expenses and making funds available for the Principal’s needs. A personal matter is any matter relating to Principal’s personal or lifestyle affairs.  For example, engaging a service provider for the Principal, and where and with whom the Principal lives.  Personal matters do not include medical treatment.2  
 
However, there are also specific actions that an Attorney cannot take on behalf of their Principal. These include the following: 

  • Vote; 
  • Making decisions about the care or wellbeing of the Principal’s children; 
  • Make or revoke a Will; 
  • Make or revoke an enduring power of attorney; 
  • Consent to a marriage or dissolution of marriage; 
  • Manage the Principal’s estate on their death; 
  • Consent to an unlawful act. 

Alternative Attorneys   

The Principal has the option to nominate Alternative Attorneys as a back up to their nominated initial Attorney. Alternative Attorneys can only act if the initial Attorney is unwilling or unable to. Alternative Attorney will have the same, powers and responsibilities as the initial Attorney they replaced, unless the Principal decides otherwise. 

How do Attorneys make decisions if there are multiple Attorneys appointed? 

If multiple Attorneys are appointed, then the Principal can decide how these Attorneys make decisions. These may include the following methods: 

  • Jointly – the attorneys must make decisions together and all agree; 
  • Severally – the attorneys can make decisions independently;   
  • Jointly and severally – the attorneys can make decisions together and independently; 
  • By majority – a majority need to agree to make a decision.3 

When does the role of an Attorney start? 

The Principal decides when the Attorney’s power to make decisions starts. It can be at different times for different matters. For example, immediately for financial matters and when the Principal has lost capacity for personal matters. 

If the power to make decisions commences immediately, then the Attorney will only need to assist the Principal when asked for help.  The Principal can still make their own decisions while they have decision-making capacity, but the Attorney’s power will remain in effect should the Principal later lose their decision-making capacity. 
 
If the power commences on the loss of capacity then the decision-making power only commences at a point in the future when the Principal is unable to make to decisions.  The Attorney may be required to show evidence of the Principal’s loss of capacity before they can act. This may take the form of a medical certificate. Moreover, whether Attorneys are able to act may depend on the complexity of the decision.  For example, the Principal may not have capacity to a make a decision about a complex matter, but may still be able to make simple decisions. 
 

Company Power of Attorney 

Legally, a company has separate legal personality from its owners (i.e. the shareholders) and its directors. The directors of a company are essentially empowered with the decision-making capacity required for a company to act like a legal person. This may include for example, entering into contracts. In this instance, depending on the number of directors who have been appointed to the board, either the sole director or alternatively, two directors (or one director and the company secretary)4 would sign the contract at hand on behalf of the company and enter into the agreement with the counterparty. 

There may be a case, however, where the directors of the company are unable to act. This is especially true in a situation where a company is run by a sole director. In the event that this individual is overseas or faces illness and a document needs to be physically signed by wet ink, unless this specific company had appointed a power of attorney, it would be unable to enter into the contract. This is particularly important for a small business or a start-up lead by a single entrepreneur. 

When considering who to appoint as the company’s attorney, it is important to note that this may either be another company or an individual who is over the age of 18 and who is capable of understanding the nature and effect of the appointment or a partnership or trustee of a trust. The limits on the delegated authority should be expressly and clearly documented in a company power of attorney instrument. The company power of attorney would also set out the period of the attorney’s appointment. Documenting these items are vital as it would greatly minimize the risks of the attorney acting outside the boundaries of its authority.  

A company POA is also unique to a specific company despite it being a subsidiary or part of a corporate group. In other words, a company power of attorney of a subsidiary does not extend to its holding company. Another significant point to note is that if an Enduring POA is made by a person in their capacity as an individual whilst this person also acts as a director of a company, that Enduring POA does not extend to the company. That is to say, the attorney under the Enduring POA instrument cannot sign documents on behalf of the company in the person’s capacity as a director or wear their hat as a company director and make other decisions on behalf of the company. This is the case even if the individual is the sole director of a company. However, subject to the financial powers set out in the Enduring POA instrument, the attorney can exercise any rights of the individual (the principal in this case) as a shareholder of the company. 

We can help

Understanding Powers of Attorney is a specialised area of law and an important part of business and estate planning. If you need assistance with drafting Powers of Attorney, Partners Legal Solutions can help. Contact Partners Legal Solutions today on 03 8508 7800.

 

Partners Legal Solutions Pty Ltd (ABN 52 655 454 014) is affiliated with Partners Wealth Group. Liability limited by a scheme approved under Professional Standards Legislation. This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.