As we noted in our last post (Help! One of our directors is missing!) it’s that time of year when summer holidays mean key signatories may be away. Whilst the use of a power of attorney can prevent the absence of a principal from unnecessarily delaying a particular matter or transaction, what should you do when asked to rely on an attorney’s authority to act for the absentee?
Firstly, you need to see the original power of attorney (or an appropriate certified copy) but then there are a few basic things to check:
Can the attorney do the proposed act?
A transaction between an attorney and a third party can only bind the principal if the transaction is within the attorney’s authority. So it is vital to check that the proposed act is covered by the power of attorney. It would be preferable to see an express reference to the proposed act – for example, that the attorney is authorised to sign a specific document for the principal. General wording may be sufficient but will have to be carefully considered as a power of attorney will be strictly construed.
In addition, a third party relying on a power of attorney will be deemed to know of any limit on the attorney’s power which the third party had the opportunity to discover but which he did not take. So if the power refers to any other limitations (such as restrictions on the attorney’s authority contained in another document) you should investigate those limitations.
Has the attorney been properly appointed?
An attorney can only be appointed by a deed properly executed by the principal. For an individual, this means the principal’s signature must be witnessed.
For a company the power of attorney can either be signed by a single director in front of a witness, or it could be signed either by two directors or a director and the company secretary. (A company can also execute a deed by using its company seal though this is relatively rare now as many companies simply don’t have a seal).
In addition, you should check that the principal is over 18 and not bankrupt.
Can the appointed attorney act as an attorney?
Any individual who is over 18 and not bankrupt or of unsound mind can act as an attorney.
A company can act as an attorney if this is authorised by its constitution or other documents setting out its powers and objects. A company incorporated after 1 October 2009 is deemed to have no restrictions on its powers and objects unless these are specifically set out in its articles.
Like a company, a limited liability partnership could act as an attorney as it has a separate legal personality. A general partnership, however, is not a separate legal person and therefore cannot be an attorney.
Is the power of attorney still in force?
Generally, a power of attorney can be revoked at any time by the principal. A power of attorney given ‘by way of security’ or ‘coupled with an interest’ will be irrevocable without the attorney’s consent for so long as the relevant interest or security remains.
Check if the power of attorney contains an expiry date. If there is no express date, ask the principal or attorney (or their legal advisers) to confirm that the power of attorney has not been revoked.
How should the attorney act?
If more than one attorney has been appointed, check whether they have to act jointly (so they must all sign a contract) or whether they can act separately, with the signature of a single attorney being sufficient to bind the principal.
The power of attorney should also be checked to see whether the attorney should sign in their own name or in the principal’s name. If the attorney signs in their own name, the document should make it clear that the attorney is signing on behalf of the principal in order to avoid any personal liability attaching to the attorney.
Follow these simple steps to ensure the transaction you enter into with an attorney will bind the absent principal.