A company director who lacks the requisite capacity to carry out their duties can have a serious impact on the ability of a company to carry out its business. Without a sufficient level of capacity, a director cannot take decisions on behalf of the company or, if they do, such decisions could be challenged and later set aside on the grounds of a lack of capacity. This could have serious ramifications in respect of business dealings and could cause the company financial loss. For example, if a director enters into a contract without the requisite capacity, that contract could subsequently be set aside.
Our briefing explores the challenges around mental incapacity of directors, including stress testing the robustness of constitutional documents, considerations when appointing replacements and managing reputational impact. Our expert, Dr Phil Hopley, also explores how mental capacity can be assessed and the considerations when thinking about a loss of capacity, including who may have authority to make decisions on the director's behalf.
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