When key personnel lose capacity


Author: Helena Luckhurst


This article is taken from the latest edition of Fladgate’s Fashion Update. Please email the marketing team on marketing@fladgate.com to be added to the mailing list for future updates.

Managing risk is a fact of life for most fashion businesses these days. Often this is done through the constitutional documents that your advisers put in place for you when you first set up your business: articles of association or shareholders’ agreements for companies, for example.

However, there is one area of business risk that is often overlooked by fashion designers, potentially with devastating consequences, and that is the risk of key personnel in the fashion business losing capacity to take business decisions.

We tend to think of loss of capacity as something that happens gradually in old age. However, in reality, it can happen to anyone at any stage in their career and the loss can be quite sudden.

I was reminded of this when I was asked to advise a family whose father had his own design business. He was a sole trader. He contacted us shortly before he was scheduled to have a routine but major operation, to make some revisions to his Will – “just in case”. However, we could not persuade the father to make any plans to empower others to manage his business for him while he was recovering from his operation. He fully expected to be back in charge a few weeks afterwards.

Sadly, the routine operation resulted in complications. His daughter phoned us in a panic a few weeks later. Since the operation, her father had not been able to communicate with anyone. She needed to access the business accounts immediately to pay suppliers, staff and generally to keep the business going, as well as pay for her father’s private healthcare. In the meantime, she was funding these expenses from her own pocket, which she was finding a strain. At that point, there was no firm indication if, or when, her father would regain capacity.

This nightmare scenario could have been easily avoided if the father had made a Property and Financial Affairs Lasting Power of Attorney, naming someone to take financial business decisions on his behalf if he was ever unable to take them himself. Unlike general powers of attorney, Lasting Powers remain valid even if the maker of the power has lost mental capacity.

Fashion designers might choose to make a Lasting Power covering their business assets and another Lasting Power dealing with personal assets, and appoint a trusted business partner as attorney on the former and a trusted family member as attorney on the latter.

Lasting Powers need to be registered before they can be used, which takes about three months, so well-advised business owners will put them in place and get them registered. If the worst happens and capacity is suddenly lost, the business is not left to drift. Without a Lasting Power, an expensive and lengthy application to the Court of Protection awaits.

Well-drawn business constitutional documents can also help out in this situation, but of equal importance for director/shareholders and partners is a Property and Financial Affairs Lasting Power of Attorney. For sole traders, Lasting Powers are the only line of defence.

So next time you are assessing the risks that your fashion business is exposed to, don’t forget to put Lasting Powers of Attorney on the agenda. Think of them as your insurance against incapacity.

Helena Luckhurst, Partner, Fladgate LLP (hluckhurst@fladgate.com)

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