Directors warned to protect their business as pandemic highlights lack of contingency planning

Covid-19 has highlighted the need for greater contingency planning around the illness or incapacity of directors at businesses across Kent, according to a lawyer with Furley Page solicitors.

SMEs now make up 99% of all private businesses in the UK, with many start-ups and family businesses operating without formal corporate structures and agreements; making them particularly susceptible to difficulties should a key director or business owner fall ill.

Aaron Spencer, Partner & Head of Private Client at Furley Page, said: “The pandemic has focussed minds on the importance of good contingency planning, but many business owners still do not consider the impact that personal health problems might have on their business.

“It is vital to plan for the health problems of key directors, just as one might insure against fire or other business risks. To some extent this will depend on the type of business structure and whether there are other directors or partners who can manage the business in another’s absence.

“Business owners should consider what should happen to an owner’s interest in the business if they can no longer participate in it and look to review their shareholders’ agreement or partnership agreement, as applicable.

“However, for sole directors, a separate Lasting Power of Attorney (LPA) covering business interests is an effective way to ensure that an enterprise is protected if a key director loses mental capacity.”

In cases where a business owner is unable to carry out their duties within the business and has not put a formal agreement in place, the effect on the business can be serious. For example, should a sole director with no lasting power of attorney become incapacitated, no- one will have authority to make business decisions or access the business bank account.

Aaron continued: “By making a specific lasting power of attorney in respect of your business decisions you can decide who will step in if you can no longer run your organisation yourself, whether this is a temporary or permanent situation.

“Pre-planning also prevents additional stress being placed on your loved ones and colleagues, and creates greater certainty for customers and suppliers, as they will be able to continue engaging with your business without major disruptions.”

The process for a business lasting power of attorney is the same as one for personal financial affairs, and requires the appointment of a trusted person to act as attorney. Obtaining advice from a solicitor and having a lasting power of attorney professionally drafted will ensure that it adequately protects the business’ interests.

For further information, please contact Aaron Spencer, Partner and Head of Private Client on 01227 763939 or email aas@furleypage.co.uk