Are you the sole director and shareholder of a company?
As a sole director, have you thought about what would happen to your company if you became incapacitated, or worse, if you died? Who would pay the bills, and enforce the company’s rights?
A company can only act through its directors, and if the sole director is not able to act, then the company is effectively ‘frozen’. The only people who can appoint a new director are the company’s shareholders – and if you are the only shareholder, then things get interesting.
If you have appointed your own personal enduring attorney, and you are the shareholder, then your attorney should be able to appoint a replacement director, (provided you have given them wide enough powers). Your attorney would appoint a replacement director by passing a written resolution as a shareholder. Thankfully this written resolution can be made without the director (i.e. you) first calling a meeting of members. We note that your own personal attorney is not able to simply step into your shoes as the director of the company, they can only exercise the powers of a shareholder. This is because your role as a director of a company is not something you can delegate to a personal attorney.
If you have not appointed your own personal enduring attorney, then the affairs of the company will remain frozen until an application can be made to the Guardianship Board to have a person appointed to administer your affairs. This can take months…
What if you have died?
As noted above, the only person who can appoint a new director are the company’s shareholders. But in this case, the only shareholder has died (i.e. you). In this situation the company remains frozen until the person you have appointed as your executor under your Will is able to step into your shoes and deal with your shares in accordance with your Will.
The time period between when you die and when your executor is granted authority to deal with your assets (i.e. probate is granted) generally lasts several months. Even if your executor is very efficient and gets the application into the Probate Registry within weeks (which rarely happens), the processing time after that is usually months.
We also note that your Will must contain provisions enabling your executor to appoint a director immediately, rather than requiring a distribution of your shares to your beneficiaries. This is because it may take some considerable time before your executor is able to make a distribution of the shares from your estate.
So who pays the bills in the interim, i.e. between your death and probate of your Will?
One strategy to deal with this issue is for your company to appoint its own attorney. Under the Corporations Act a company has all the powers and authority of a ‘natural person’. Accordingly, your company can appoint an attorney to act on its behalf when the company itself is not able to act. However, unlike humans, a company does not die. So when you have passed away, the person the company has appointed as the company’s attorney can continue to act.
We generally recommend that you appoint the same person (or persons) that you have appointed as the executor under your Will to be the company’s attorney. The executor can then step into your shoes straight away, rather than having to wait until probate is granted.
This is a simple strategy that can save a lot of grief.
What if you are the sole Australian resident director of a foreign owned company?
Another circumstance where you may wish to consider using a company power of attorney is when the company is foreign owned and only has one resident director.
The company is likely to have one or more foreign directors, which means that at least two directors must sign contracts for the company. However, having the foreign director sign contracts can sometimes be logistically difficult. For this reason, the company may wish to execute a company power of attorney to delegate sole authority to the local resident director. If necessary, the power of attorney can also be drafted to limit the extent of authority of the local director, so that more important actions still require the involvement of at least one of the foreign directors.
To put Company Powers of Attorney in place for your sole director / shareholder companies, call us on 1300 654 590.
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