This is Part III of my saga on incapacity planning in a corporate context. Part I and Part II can be found respectively at: https://www.allaboutestates.ca/powers-of-attorney-for-property-implications-of-obtaining-a-formal-capacity-assessment/, and https://www.allaboutestates.ca/what-happens-when-a-shareholder-voting-or-a-director-becomes-incapable-powers-of-attorney-for-property-and-shareholder-agreement-drafting-tips/.

As a reminder, Part II addressed two situations that we, as estate planners, are commonly asked about:

1. A director becomes incapable – who can sign for them?
2. A shareholder (voting) becomes incapable – who can attend to governance regarding electing directors and officers and what can be considered at the shareholder agreement drafting stage to assist with this situation?

Part III, being this blog post, addresses a third situation:

3. A shareholder who is party to a transaction becomes incapable – who can complete the transaction for them?

To answer the question raised by the third situation, section 34 of Ontario’s Substitute Decisions Act states that “a guardian of property has power to complete a transaction that the incapable person entered into before becoming incapable.”[1]

With that in mind, whether acting for the shareholder or another party, you may wish to complete due diligence, which among other considerations, may include asking the following questions:

(1) Is the shareholder incapable?

You may wish to determine that the shareholder is in fact incapable. While powers of attorney that are not “springing” are effective immediately, practically, such step may be prudent.

(2) Are there any provisions in corporate documents governing the circumstance?

You may wish to review relevant corporate documents, such as shareholders’ agreements, to determine whether there are any provisions governing a circumstance of a shareholder’s incapacity. Provisions in corporate documents may affect who can complete the transaction on the shareholder’s behalf.

(3) Does the shareholder have a power of attorney for property (“POAP”)?

• If the shareholder has a POAP

Consider determining whether the shareholder’s POAP is valid. Such determination may include consideration of whether:

• The POAP has not been revoked;
• The POAP is a continuing power of attorney (in other words, it survives past the shareholder’s incapacity);
• The POAP has been validly granted;
• The POAP does not contain any relevant restrictions, such as a limitation to dealing with certain assets;
• The POAP is effective immediately and is not a “springing” power of attorney (in other words, it does not require a “triggering event” to occur before coming into effect);
• The grantor and attorney’s identities match what they are representing; and
• There are no suspicious circumstances or indicia of fraud which may require additional due diligence.
• If the shareholder does not have a POAP

Without a POAP, to complete the transaction on the shareholder’s behalf, consider whether a guardianship application is necessary. If so, once a court appoints a guardian, the guardian should have the legal authority to manage the shareholder’s property and to complete the transaction on their behalf.

That ends my trilogy on incapacity planning. For now 😊.

Tamar

[1] Substitute Decisions Act, 1992, SO 1992, C-30, s 34.