When the Decision-Maker Cannot Decide: Business Continuity After a Loss of Capacity

For the owner of a small enterprise, the business is rarely separate from the person. The bank account answers to your signature. The payroll runs on your instruction. The suppliers trust you, personally, to pay them. So when illness, accident or degenerative condition removes your ability to make decisions, the machinery of the business does not simply slow down — in many cases it stops altogether.

At Bentley Law, we see the consequences of this more often than most people imagine, and almost always after the damage is done. This article explains what actually happens when a business owner loses capacity without the proper arrangements in place, and what can be done about it.

The Immediate Freeze

Consider a common scenario. A sole trader running a successful construction firm suffers a severe stroke. The business account requires two signatures for larger payments, or perhaps the bank simply recognises only one authorised signatory: the owner. From the bank's perspective, that person can no longer give valid instructions.

The account is not necessarily closed, but it becomes effectively frozen for anything beyond passive transactions. Direct debits may continue; discretionary payments — including wages — may not. The spouse or adult child who has always handled the books informally has no legal authority to step in. They cannot sign contracts, authorise payments, or even access the account to establish what the position is.

For a company director, the position is more layered but no less serious. A company is a separate legal person, and its decisions are made by its board. If the incapacitated director holds a majority of the shares and exercises de facto control, the company may find itself unable to pass resolutions, appoint new directors, or transact significant business. Minority shareholders or the remaining board may be able to act, but only within the company's articles — and many small company articles assume a hands-on owner-manager who will always be there.

The Court of Protection Route

Where no lasting power of attorney (LPA) exists, the only route to someone obtaining legal authority over the individual's affairs is an application to the Court of Protection under the Mental Capacity Act 2005. The Court can appoint a "deputy" — usually a close relative, sometimes a professional — to make decisions on the person's behalf.

This is not a quick process. A straightforward property and financial affairs application typically takes several months from submission to order, longer if the paperwork is imperfect or family members disagree about who should be appointed. The applicant must provide detailed information about the person's assets and circumstances, satisfy the Court that a deputyship is necessary and proportionate, and pay the associated fees. In urgent cases — where, say, a payroll deadline is imminent — the Court has an expedited procedure, but "urgent" in Court of Protection terms means days or weeks, not hours.

Once appointed, a deputy operates under a court order that specifies what they may and may not do. Deputies are supervised by the Office of the Public Guardian, must keep annual accounts, and hold personal liability for the decisions they take. It is a robust system, but it is designed for protection, not speed — and a business with suppliers to pay and staff to remunerate may not survive a six-month wait.

The Ripple Effects

The consequences extend well beyond the bank account:

• Payroll and HMRC. Missed RTI submissions or unpaid PAYE quickly attract penalties, and HMRC expects payment regardless of the owner's health.
• Contracts. Ongoing contracts may be breached because the person authorised to perform them cannot do so, exposing the business to claims.
• Employees. Staff may go unpaid, and with no one authorised to act, there may be no one to even communicate the position to them.
• Commercial property. Rent and service charges fall due whether or not the tenant's signatory is in hospital.

In our dispute resolution and commercial practices, we have watched otherwise sound businesses fail not because of market forces, but because of a single point of human failure that could have been planned around.

The Better Path: LPAs and Continuity Planning

A lasting power of attorney for property and financial affairs costs a fraction of a deputyship application, can be registered and ready to use, and — crucially — can be created while the donor has capacity. Every business owner should consider one as a matter of course. For company directors, it is also worth reviewing the company's articles and any shareholders' agreement to consider what happens on incapacity, and whether a trusted co-director or alternate director should be appointed to keep the board functional.

A practical starting checklist:

1. Execute and register a property and financial affairs LPA, naming attorneys who understand the business.
2. Prepare a written business continuity document: bank details, signatories, key contacts, recurring obligations, payroll process, insurance policies.
3. Review company articles and shareholder agreements for incapacity provisions.
4. Consider authorising a second signatory on the business account.
5. Take professional advice on the interaction between personal attorneys and company governance — the two do not automatically connect.

Planning Is Cheaper Than Rescue

Losing capacity is not a topic anyone enjoys contemplating, but the arithmetic is stark: a modest investment in planning now, or months of court proceedings, frozen accounts and mounting liabilities later. If you would like to discuss lasting powers of attorney or a business continuity review, our Private Client and Commercial teams would be glad to assist.