The change:

From 28^th April 2013 Model Articles of Association for new companies no longer contain old article 18(e) for automatically terminating a director’s appointment where on mental health grounds a court has made an order restricting their personal right to exercise their powers or rights . The amendment is due to the Mental Health (Discrimination) Act 2013.

Background:

When a new company is incorporated, unless different Articles are used, the new default Model Articles of Association apply which no longer contain article 18 (e) which stated  that a person ceases to be a director as soon as ‘ by reason of that person’s mental health, a court makes an order which wholly or partly prevents that person from personally exercising any powers or rights which that person would otherwise have’.

What this means in practice:

Unless the director resigns, companies will need to rely on article 18 (d) which requires that a registered medical practitioner who is treating the director must have first given a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months.

Companies with an existing provision in their Articles similar or identical to article 18 (e) are not obliged to remove it but may do so by amending their articles. 

How we can help:

We provide specialist Company law advice, prepare Articles of Association and Shareholders’ Agreements and can help you change your Articles. To give you peace of mind we offer a Company Constitution Review service to check your Articles of Association and Shareholders’ Agreement.  Clients usually wish  to have articles modified to meet their needs (e.g. to insert a special article permitting share transfers only if a selling shareholder has offered them to the other current shareholders first).

If you would like to find out more please contact Niels McKenzie.

1.  Our  client wants to know what he can do and what his remedy is after his fellow shareholders and directors had arranged the sale of his company’s business and assets at a poor sale price without his consent.   There were no clauses in the Articles of Association or a Shareholders’ Agreement which prevented this.  Unfortunately now he will have to weigh up the cost versus the benefit of pursuing a claim against the others for their unfairly prejudicial conduct.

2.  Another client has run a hugely successful professional practice over a number of years with an equal shareholder and director who has played no part in her practice for many years. There is no Shareholders’ Agreement in place nor suitable Articles of Association or an employment agreement that can be used to force  the non-performing shareholder to sell his shares.  Our client’s options are to either to soldier on, ask for our help to negotiate the purchase of the non-performing shareholder’s shares for the lowest price we can (which may well be  more than the non-performing shareholder deserves), or to ask us to advise on potentially costly solutions such as applying to Court to wind up the company.

In both cases, if a settlement or negotiated agreement cannot be reached then the legal remedy may cost many thousands of pounds and, as with all litigation, the outcome is never 100% certain.

In both cases, if there had been a suitable Shareholders’ Agreement and Articles of Association in place there would have been no problem.  We are experts at preparing Shareholders’ Agreements and Articles of Association and would be happy to have an initial discussion with you free of charge.

The Mental Capacity Act sets out five key principles which Attorneys must follow

• A person must be assumed to have capacity unless it is established that the person lacks capacity;
• A person is not to be treated as unable to make a decision unless all practical steps to help the person to do so have been taken without success;
• A person is not to be treated as unable to make a decision merely because the person makes an unwise decision;
• Any act done, or a decision made, under the Mental Capacity Act for or on behalf of the person who lacks capacity must be done, or made, in the persons best interests; and
• Before the act is done, or the decision is made, regard must be had to whether the purpose for which it is needed can be as effectively achieved in a way that is less restrictive of that person’s rights and freedom of actions.

Attorneys are then given guidance in relation to these principles by the Mental Capacity Act 2005 Code of Practice.  Attorneys have a duty to regard the code.  So Attorneys making a decision where the person they act for lacks capacity to make the decision must act in that person’s best interests.

Chapter 5 of the Code of Practice gives guidance about “best interests”.

The Mental Capacity Act Code of Practice can be accessed via the Ministry of Justice website.

A person who is trying to work out the best interests of a person who lacks capacity to make a particular decision should:

Encourage Participation

• Do whatever is possible to permit and encourage the person to take part, or to improve their ability to take part in making the decision

Identify all Relevant Circumstances

• Try to identify all the things that the person who lacks capacity would have taken into account if they were making the decision or acting for themselves.

Find Out the Persons Views

• Try to find out the views of the person who lacks capacity, including;

• The person’s past and present wishes and feelings – these may have been expressed verbally, in writing or through behaviour or habits.
• Their beliefs and values (e.g. religious, cultural, moral or political) that would be likely to influence the decision in question.
• Any other factors the person themselves would be likely to consider if they were making the decision or acting for themselves.

Avoid Discrimination

• Not make assumptions about someone’s best interests simply on the basis of the persons age, appearance, condition or behaviour

Assess Whether the Person Might Regain Capacity

• Consider whether the person is likely to regain capacity (e.g. after receiving medical treatment).  If so, can the decision wait until then?

Consult Others

• If it is practical and appropriate to do so, consult other people for their views about the person’s best interests and see if they have any information about the person’s wishes and feelings, beliefs and values.  In particular, try to consult;

• Anyone previously named by the person as someone to be consulted on either the decision in question or on similar issues
• Anyone engaged in caring for the person
• Close relatives, friends or others who take an interest in the persons welfare
• Any Attorney appointed under a Lasting Power of Attorney made by the person
• For decisions about major medical treatment or where the person should live and where there is no one who fits into any of the above categories, an independent Mental Capacity Advocate must be consulted
• When consulting, remember that the person who lacks capacity to make the decision or act for themselves still has a right to keep their affairs private – so it would not be right to share every piece of information with everyone

Avoid Restricting the Persons Rights

• See if there are other options that may be less restrictive of the persons rights

Take All of This into Account

• Weigh  up all of these factors in order to work out what is in the persons best interests

Before making decisions in someone’s best interests it is important to remember the Act’s first key principle is that people must be assumed to have capacity to make a decision or act for themselves, unless it is established that they lack it.  This means that working out a person’s best interests is only relevant when that person has been assessed as lacking, or is reasonably believed to lack, capacity to make the decision in question, or give consent to any act being done.

The term “best interests” is not actually defined in the Mental Capacity Act.

Every case and every decision is different and so it is not possible for the law to set out all the factors that need to be taken into account in working out someone’s best interests.  Section four of the Act however sets out some common factors that must always be considered when trying to work out someone’s best interests.  These factors can be summarised as:

• Working out what is in someone’s best interests cannot be based simply on someone’s age, appearance, condition or behaviour.
• All relevant circumstances should be considered when working out someone’s best interests.
• Every effort should be made to encourage and enable the person who lacks capacity to take part in the decision making process.
• If there is a chance that the person will regain the capacity to make a particular decision then it may be possible to put off the decision until later if it is not urgent.
• The persons past and present wishes and feelings, beliefs and values should be taken into account

The Code of Practice stresses that it is important not to take short cuts in working out best interests, and a proper and objective assessment must be carried out on every occasion.

For Professionals making decisions in best interests, a record should be kept of the process that has been followed to work out best interests for each relevant decision.  The record should say

• How the decision about the persons best interests was reached
• What the reasons for reaching the decision were
• Who was consulted to help work out the best interests, and
• What particular factors were taken into account

For major decisions based on best interests it is also useful for family and others to keep a similar record.

On page 74 of the Code of Practice there is a scenario given by way of example relating to an elderly woman with dementia and making the decision to move her into a care home.  In making the decision her daughter should consider;

1. Her mother’s past and present wishes and feelings,
2. The views of the people involved in her care
3. Alternative ways of meeting her care needs effectively which might be less restrictive of her mother’s rights and freedoms

When someone has lost capacity to make a decision it is easy to assume that how they felt when they were well has become irrelevant.  This is not correct and the code specifically addresses this issue.  It gives guidance about how a person’s wishes and feelings, beliefs and values affect working out what is in their best interests.

Section 4 (6) of the Act requires decision makers to consider as far as they are reasonably ascertainable the following:

a)      A persons past and present wishes and feelings (and in particular, any relevant written statements made by him or her when he or she had capacity)

b)      The beliefs and values that would be likely to influence his or her decision if he or she had capacity and

c)       The other factors that he or she would be likely to consider if he or she were able to do so.

Even if a person cannot make a decision, their wishes and feelings, beliefs and values should be taken fully into account – whether expressed in the past or now.  But their wishes and feelings, beliefs and values will not necessarily be the deciding factor in working out their best interests.

The Code of Practice states that all reasonable efforts must be made to find out whether the person has expressed views in the past that would shape the decision to be made.  The code speaks of the role that beliefs and values play in the decisions that are made.  It states that these values and beliefs may become especially important for someone who lacks capacity to make a decision because of a progressive illness such as dementia for example.  Evidence of a person’s beliefs and values can be found in things like their:

• Cultural background
• Religious beliefs
• Political convictions, or
• Past behaviour or habits

As decision makers the Attorneys must be able to show that it was reasonable for them to think that the person lacked capacity and that they were acting in the persons best interests at the time they made their decision or took action.

Ultimate responsibility for working out best interests lies with the decision makers.