While there are plenty of reasons to have Powers of Attorney in place regardless of your specific circumstances, in circumstances where you have effective control and management of entities such as companies, self-managed superannuation funds and trusts, it is important to think specifically about the types of powers and limitations to include in the document, and the practical implications of having (and not having) the document.
There are many types of specific Powers of Attorney and corporate Powers of Attorney that companies may use to appoint people to enter transactions on behalf of the company, but here we will focus on how a director or shareholder of a company should structure an Enduring Power of Attorney to ensure their role can be performed by their attorney in the event the director is not capable of acting.
When drafting an Enduring Power of Attorney, it is possible to include any number of conditions and instructions. This allows you to restrict the attorney’s power in specific contexts, or expressly confer specific powers to the attorney.
A personal Enduring Power of Attorney enables the nominated attorney to step into the principal’s position as a shareholder of the company and exercise the powers of a shareholder – for example (depending on the percentage of ownership and decision-making requirements), they may hold a shareholder meeting and change the directorship of the company (particularly if the current shareholder/director no longer has decision making capacity).
An attorney cannot make decisions on behalf of a company director unless the company directors execute a specific Power of Attorney authorising a person to act as the company’s attorney. The ability to do this will depend on whether the Constitution of the company allows for a company Power of Attorney. It is important to note that, if a company appoints someone to act as the attorney for the company, any liability for the actions of the attorney still rest with the directors.
Where you are a shareholder of a company, it is vital that your Enduring Power of Attorney contains specific provisions to ensure that your attorney is able to perform that role on your behalf as the circumstances require. In the absence of such provisions, it can be difficult to establish whether such powers were intended to be conferred on your attorney, and the extent to which they were intended to operate. It is particularly important if you are intending to appoint anyone who may find themselves in a conflict position, to include express powers to act in conflict. For example, if you have a spouse or child working in a family business, and that person is your nominated attorney, they have the power to exercise your rights as a shareholder to remove you as a director and appoint themselves. However, as a director, they may be in a position to set their own wages (if they are also working for the company), which may be considered a conflict of interest, as an attorney is not allowed to “profit from their position”.
Where you hold an office position with regards to a Family Trust or any other trust, it is extremely important to carefully consider who is appointed as the attorney, and whether to include specific provisions in your Enduring Power of Attorney in relation to conflict transactions in the trust.
A trustee’s discretion cannot be “fettered”, so if an attorney steps into your role as the trustee of a trust, they have complete discretion (insofar as this is provided by the Trust Deed) regarding the management of the trust and distribution of trust income and capital.
Again, this may put a nominated family member attorney in a conflict position if they are also the beneficiary of the trust, and it is important to clarify whether or not the Enduring Power of Attorney document is intended to enable them full and free use of the trustee position regardless of the potential conflict of interest (that is, whether they are allowed to make distributions to themselves and other family members).
Self-Managed Superannuation Funds (‘SMSF’)
A SMSF is a type of trust, so where you hold an office position with regards to a SMSF, the section above regarding trusts is equally applicable; however, there are also provisions that should be considered in relation to your membership with the SMSF.
An Enduring Power of Attorney may be particularly important in relation to a SMSF if the members are working overseas for an extended timeframe, as the compliance rules for SMSFs require control to remain in Australia. In this case, it may be worthwhile considering a Power of Attorney in which the attorney’s role is limited to the management if the SMSF, and potentially nominating an independent professional in this position.
One significant matter to be considered in relation to your Enduring Power of Attorney as a member of a SMSF is the management of your superannuation benefits under the SMSF. Where the member of a superannuation fund has a terminal illness, it is generally possible to apply for a lump sum payment of the member’s superannuation entitlements tax-free; however, if the member is incapable of making such an application themselves, the power to do so must be expressly conferred on their attorney.
Additionally, there may be circumstances where it is in the best interests of a member to make a binding death benefit nomination in relation to their superannuation entitlements, or confirm an existing binding death benefit nomination when it is due to lapse. Once again, however, if the member is incapable of doing this themselves, the power to do so must be expressly conferred on their attorney under their Enduring Power of Attorney.
Who should I appoint as my Attorney in these circumstances?
Where you have effective control and management of entities such as companies, self-managed superannuation funds and trusts, empowering your attorney to act on your behalf involves a good deal of power and responsibility. For this reason, it is especially important that you choose the right person for the job.
Where do not have any family or friends who are sufficiently qualified to assume these roles on your behalf, a “professional” attorney such as a lawyer, accountant, or other provider of professional services, will often be the most suitable option.
A “professional” attorney will generally charge for their services if they are required to act under a Power of Attorney, but they are suitably qualified to manage these entities, and the duties imposed on them by the nature of their profession holds them to a higher standard to ensure they manage these entities appropriately.
If you would like to discuss the appointment of a “professional” attorney, we recommend you discuss this with your prospective attorney, and at Burke & Associates we are more than happy to assist in this regard, or in relation to Powers of Attorney in general. If you would like to discuss appointing Burke & Associates Lawyers as your legal advisor or require any advice at all, please reach out to the lawyers in our Wills & Estates Division via phone on +61 3 9822 8588 or online via firstname.lastname@example.org
Insight written by Luke Palmer