Changes to Powers of Attorney in Victoria

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By Martin Checketts, Partner

The Powers of Attorney Act 2014 commenced today (1st September 2015). There are a few practical changes to the use of powers of attorney that I would like to draw to your attention. I would also like to take the opportunity to remind you of relevant considerations in the context of powers of attorney so far as they relate to different structures and, in particular, private business owners.

In this article I attempt to avoid overly complex discussions. This article is designed to be practical and easy to read. I will be hosting a webinar in due course to discuss these changes and will field a number of questions. Please contact me by email (see below) to request an invitation to the webinar or if you would like to discuss the implications of these changes for you and/or your business.

The Position Pre 1st September 2015

In Victoria there were five main types of powers of attorney:

  1. Company Powers of Attorney, by which a company, in accordance with its constitution, typically appoints a person to act on behalf of the company to, for example, sign documentation. Note that this is different to a director appointing an alternate director or agent and it is different to a shareholder making a power of attorney in relation to the shares.
  2. General Powers of Attorney under the Instruments Act 1958, by which a person appoints another person to make decisions in relation to their finances eg dealing with their shares, for them for a limited time, for example, while they are overseas. This power ends if the person giving the power loses capacity.
  3. Enduring Powers of Attorney (Medical treatment) under the Medical Treatment Act 1986, by which a person appoints an agent to refuse medical treatment for the person in certain circumstances if the person is no longer legally competent to refuse treatment.
  4. Enduring Powers of Guardianship under the Guardianship and Administration Act 1986 (now dealt with under the new Powers of Attorney Act), by which a person appoints a Guardian to make a range of non-financial decisions if the person loses the capacity to make those decisions. Such decisions include where they will live, who can visit them and who cares for them.
  5. Enduring Powers of Attorney (Financial) under the Instruments Act 1958 (now dealt with under the new Powers of Attorney Act), by which a person appoints an attorney to make decisions about financial matters such as buying and selling assets. The financial power can start at any time e.g. immediately, on incapacity or at some other defined time.

The Position Post 1st September 2015

For anyone who has not yet made a power of attorney, there are now five main types of powers of attorney that can be made:

  1. Company Powers of Attorney.
  2. Non-Enduring Powers of Attorney under the Powers of Attorney Act 2014, which operate in a similar way to the General
    Powers of Attorney under the Instruments Act 1958.
  3. Enduring Powers of Attorney (Medical treatment) under the Medical Treatment Act 1986.
  4. Enduring Powers of Attorney under the Powers of Attorney Act 2014, which combine the old financial and guardianship
    powers. The new document usefully includes the ability to nominate more than one person for financial
    and/or personal (formerly guardianship) decisions and states that these people can make decisions jointly
    and/or severally or by majority. The power can still commence at any time. There are some additional changes under
    the Powers of Attorney Act 2014 which are worth pointing out and these include:

    1. the Powers of Attorney Act 2014 sets out the duties to act honestly, diligently and in good faith and to act with reasonable
      skill and care;
    2. there are new provisions prohibiting conflict of interest transactions, unless authorized by the person making the power
      or by the Victorian Civil and Administrative Tribunal (VCAT);
    3. VCAT has additional powers to order compensation for loss caused by inappropriate use of the power and VCAT also
      has the power to provide advice and resolve disputes where multiple people are appointed under the Enduring Power of
    4. the Powers of Attorney Act 2014 creates offences for dishonestly obtaining or using the power, which are punishable
      by up to 5 years in prison;
    5. anyone who has been convicted of or found guilty of a dishonesty offence cannot be an attorney unless it has been
      disclosed to the person making the power and recorded in the form; and
    6. anyone who is a “care worker”, “health provider” or “accommodation provider” (defined in the Powers of Attorney
      Act 2014) for the person making the Enduring Power of Attorney cannot be appointed.
  5. Appointment of Supportive Attorney under the Powers of Attorney Act 2014, by which a person can appoint a supportive
    attorney to collect or obtain information, communicate or assist the person to communicate decisions or do anything
    reasonably needed to effect the person’s decisions (not including significant financial transactions). This power ends if
    the person who made the Appointment of Supportive Attorney loses capacity. An Enduring Power of Attorney would then
    be required.

What If I haven’t Made A Power of Attorney?

If a person has lost capacity and has not made an Enduring Power of Attorney, an application to VCAT can be made to have one or more people appointed to make decisions. Of course, the decision is then taken out of the hands of the person who has lost capacity and there are no guarantees that VCAT will appoint the person or people that one would expect. Furthermore, VCAT are likely to require the annual filing of accounts, which can be scrutinized. For anyone who prefers to keep their financial affairs private, I would recommend making an Enduring Power of Attorney.

What About Trustees?

You will notice that I have not mentioned trustees. The company power of attorney can be useful for corporate trustees, but can a trustee nominate a replacement person? You may have a controlling role in respect of a trust or self managed superannuation fund. Just as it is important to consider whether you wish to nominate someone to make decisions for you, it is also important to consider whether you wish to nominate someone to take over from you in any fiduciary roles. It is said that a trustee cannot delegate their power. That is correct but there is often a way to achieve an outcome similar to that achieved by a power of attorney. For example, shareholders of a corporate trustee (using a power of attorney) can appoint new directors by using their voting power (subject to the company constitution) and there is often a power given to someone (sometimes called an appointor or principal) in the trust deed to replace trustees and deal with the problems caused by incapacity.

In the context of self managed superannuation funds, the Superannuation Industry Supervision Act 1993 provides that a fund may still be a self managed fund where a member is not a trustee or director of a corporate trustee in the event that their legal personal representative is appointed as trustee/director in their place while they are incapacitated or where there is a valid Enduring Power of Attorney.

What To Do

After reading this article, you would be forgiven for wondering whether you really want to make a power of attorney or indeed whether you want to act as an attorney for someone else. My own view is that the central question is whether the person or people we have appointed or are considering appointing are really the best people for the job. The best people for the job are not necessarily the people we care about the most or the people we want to leave our wealth to when we die. Making a power of attorney is not just about properly filling in a form. When making a power of attorney, consider whether someone can really be trusted to act in your best interests. Also consider whether you have communicated to that person everything they would need to know.

If you are a business owner, consider what would happen to your business’ management and equity control if you, or another owner/manager, could no longer make decisions. We advise business owners of their options for management, equity and succession (planned or unplanned) and I can assure you that it is easier to have these conversations when all the key stakeholders are well and have capacity than it is when someone is sick, injured or unable to make decisions for themselves or their business.

For further information, please do not hesitate to contact us.

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    Submission to the Second Issues Paper released by the Senate Select Committee Inquiry on Financial Technology and Regulatory Technology