Appointing an alternate Director

Appointing an alternate Director

26 March 2013

If you run a business and act as the sole director or are one of the directors of a company, it is important that your estate plan addresses the issue of who should act as director in your place in the event of your physical or mental incapacity or death. 

The following article (sourced from a publication by Argyle Lawyers) highlights some of the issues, but it is important that you seek advice from a legal professional.

Even if you have in place an enduring power of attorney or arrangements documented in your Will, such measures may not provide adequate protection of your business interests or the outcome you desire.

Enduring Power of Attorney / Your Will

There is a common misconception that, if you were to suffer a mental incapacity that meant you were unable to perform your duties as a company director, the person appointed under an enduring power of attorney could simply step in to your directorship role(s). This is not correct. 

An enduring power of attorney is authorised to make decisions concerning the personal financial affairs of the appointing person, not decisions regarding a separate legal entity such as a company.
An attorney may become, or decide who becomes, a director of your company via your shareholding if:

  • You are the majority shareholder of the company; or 
  • If you’re not the majority shareholder, the other shareholders consent to the appointment. 

Importantly, you will not have any say in who is appointed as a director in your place as your power of attorney will make this decision. 

An enduring power of attorney ceases to have effect if you were to die. Generally, the Executor of your Will is authorised to administer your estate upon probate being granted, which may take up to six months or longer from the time of death. 

Whilst waiting for probate to be granted, no one is authorised to act as a director of your company – which may cause immense problems if you are a sole director, or a director of a company which requires at least two or more to act. This insecurity may last even longer if you do not have a valid Will in place. 

Appointment of an Alternate Director 

To ensure that the circumstances described above do not have serious financial consequences for your company, you may elect to appoint an Alternate Director.
An alternate director would be authorised to exercise all the powers of the appointing director as soon as any of the conditions connected with the appointment are satisfied. 

Such an arrangement allows you to choose a person whom you trust to continue the day to day business of your company in accordance with your wishes and also allows you to set the parameters as to when the appointment becomes operative. 

Your legal professional can assist you with more information about how to appoint an alternate director and ensure the ASIC requirements of such an appointment are met. 

Source: Kerstin Glomb and Anika Portelli | 9 October 2012 | 

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