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The Singapore Law Gazette

What Happens to a Sole Practitioner’s Law Practice if They Die or Lose Mental Capacity?

What happens to a Sole Practitioner’s law practice when they pass away or when they lose mental capacity? What preparatory steps could a Sole Practitioner take to plan for such contingencies? What are some areas in which regulators can consider to better deal with such contingencies? This article aims to delve into these issues.

Introduction

For Singapore lawyers practising alone (referred to in this article as Sole Practitioners), preparing for unforeseen circumstances is not merely prudent — it is essential, since their sudden death or loss of mental capacity could, quite literally, threaten the survivability of their practice and send unexpected ripple effects to their clients.

This article outlines what happens to a Sole Practitioner’s law practice when they pass away or when they lose mental capacity, as well as preparatory steps that a Sole Practitioner could take to plan for such contingencies.

We also highlight some issues that regulators may wish to consider to better prepare for such contingencies, if and when they arise.

What Happens if a Sole Practitioner Passes Away?

Different Outcomes in Terms of Legal Structure

When a Sole Practitioner passes away, there could be some differences in the status of their legal structure depending on whether the deceased practitioner’s law practice is a sole proprietorship on the one hand, or a limited liability corporation (LLC) on the other.

If a sole proprietor passes away, the sole proprietorship immediately comes to an end since there is no separate legal personality between the Sole Practitioner and their law practice.1Halsbury’s Laws of Singapore: Partnership and Agency Vol 15 at (180.003).

In the case where the Sole Practitioner is the sole shareholder and director of a LLC however, the situation is different as the legal practice is an entity that is legally separate from its owner(s).

As such, the continuing affairs of the legal practice after the death of the Sole Practitioner would usually be governed by its own legal instruments, such as the constitution or a shareholders’ agreement if there is one.

The estate of the deceased practitioner would own only shares in the entity, and thus the executor or administrator of the estate (or any Legal Manager appointed by them) would not necessarily be able to directly intervene or manage the law practice.

This has significant implications, as we shall see later on, on how the affairs of the legal entity are to be managed posthumously.

Common Practical Issues

Despite the apparent differences above, there remain a number of practical issues that must be commonly addressed regardless whether the law practice in question is a sole proprietorship or a solely-owned LLC.

In both scenarios, there are still clients, client files and monies involved that need to be carefully managed to ensure that the law practice maintains compliance with existing professional conduct rules, even while it continues to operate or wind down after the Sole Practitioner’s death.

In general, regardless of whether the law practice is a sole proprietorship or a solely-owned LLC, the Law Society of Singapore (Law Society) does not immediately intervene in the law practice upon the death of its Sole Practitioner.

The Law Society has the right, though it is not mandated, to narrowly intervene in client accounts, conveyancing accounts (if any) and conveyancing (CPF) accounts (if any) of a law practice upon the death of its Sole Practitioner.2See section 74 of Legal Profession Act 1966 (the “LPA”) read with paragraph 2 of the First Schedule of the LPA.

However, the Law Society’s wider powers to intervene in all other affairs of the law practice only kicks in if it believes that there has been undue delay on the part of the personal representatives of the deceased Sole Practitioner to administer the affairs of the law practice.3See section 74 of LPA read with paragraph 1(1)(b) of the First Schedule of the LPA.

As such, the posthumous arrangements of a Sole Practitioner’s law practice are largely left to the discretion of the personal representatives of the said practitioner’s estate.

These arrangements can be made on their own if the executor or administrator is a practising lawyer, or with the assistance of another lawyer acting as a “Legal Manager” if the executor or administrator is not a practising lawyer.

For the appointment of a Legal Manager, this may be done by way of a will made by the Sole Practitioner when they were alive.

However, if there is no such appointment in their will, there are two ways that a Legal Manager could still be appointed by the executor or administrator:4See The Law Society of Singapore, Practice Direction 3.7.2, “Sole Practitioners – Arrangements for Continuance of Practice” (“PD 3.7.2”) at paragraphs 8 to 9.

  1. Via a Power of Attorney

First, an executor or administrator could appoint a Legal Manager via a general power of attorney, in the case of a sole proprietorship.

Section 27 of the Trustees Act 1967 permits a “trustee”, which includes the executor or administrator of a deceased person, to delegate the exercise of any trusts, powers and discretions vested in the trustee with any other person(s) via a power of attorney.

This provision thus, in the authors’ view, provide a legal basis for the appointment of a Legal Manager to look into the affairs of a sole proprietor’s law practice and deal with it in the manner and scope as set out in the terms of the power of attorney.

However, in the case of a solely-owned LLC, the situation becomes a little more complicated: an executor or administrator would, at best, be able to delegate their powers and duties only in their capacities as shareholders of the LLC, but not as directors of the LLC as they are not automatically appointed as a de facto director upon the death of the Sole Practitioner. It is, of course, possible to appoint the Legal Manager as the director of the LLC via a shareholders’ resolution, but whether this can happen depends on the provisions of the constitution of the LLC as well as any governing shareholders’ agreement, if any.

  1. With the Law Society’s assistance

Alternatively, the Law Society may assist in sourcing for a Legal Manager if an executor or administrator requires such assistance.5See PD 3.7.2 at paragraph 11.

The Practice Pal scheme currently run by the Law Society also seems to be an expanded form of a Legal Manager.6See email from Law Society dated 8 February 2019 at 1.22 pm

Despite the wide discretion given to the personal representatives of a Sole Practitioner’s estate to manage the law practice posthumously, it appears that having a Legal Manager or Practice Pal does not preclude Law Society’s right to exercise its powers of intervention.7See letter from the Law Society dated 26 October 2015 regarding M/s S Gunaseelan & Partners.

As such, the Law Society still retains ultimate supervision over the management of a law practice even after the Sole Practitioner’s death.

Disposal of Law Practice

Once a Legal Manager is appointed, and it is decided that the law practice is to be sold, the Law Society has previously directed that personal representatives of the Sole Practitioner’s estate ought to be represented independently to avoid conflicts of interest.8See PD 3.7.2 at paragraph 14.

Practical issues

There are, however, two practical issues that could arise with the above framework, as things currently stand:

  1. Prohibition from holding other law firm appointments

Presently, a practising lawyer who holds shares in a law corporation is prohibited from holding shares in any other law corporation, or be a director, consultant or employee of any other law corporation, or be a partner, consultant or employee of any law firm or LLP, or practise as a solicitor on his or her own account.9Section 159(4) of the LPA.

With this prohibition still in place, a Legal Manager who has his or her own practice could potentially face difficulties intervening in the affairs of a law practice, especially in the case of a LLC, if the Legal Manager is unable to be appointed as a director and be vested with the powers associated with such an appointment.

Without such directorial or management powers, questions could thus be legitimately raised as to the legal basis for which a Legal Manager may act on behalf of the deceased practitioner’s law practice.

A Legal Manager may also not be given the flexibility that he or she needs to manage or wind down the affairs of the law practice without these powers.

This is a gap that appears not to be fully addressed in the current legal framework.

  1. Potential conflicts of interest

Another potential conflict of interest could arise in the course of a Legal Manager handling the client relationships and files of a deceased practitioner’s law practice, as some clients may wish to engage the Legal Manager as their lawyer to manage the rest of their files.

When that happens, the Legal Manager could be placed in a potential conflict of interest if they prefer their personal interests in taking in those clients over their duties to administer the affairs of the law practice in the interests of the deceased practitioner’s estate.

To that end, it still remains a question as to whether disclosures of interest might need to be made to the personal representatives of the deceased practitioner’s estate, or whether the personal representatives should be independently represented regardless.

While the Law Society has previously issued practice directions for a personal representative to be independently represented if the Legal Manager wishes to buy the law practice,10See PD 3.7.2 at paragraph 14. no similar Practice Directions have yet to be issued with regard to management of client relationships and client files of a deceased practitioner’s law practice.

How Can a Sole Practitioner Prepare Well Ahead of Death?

There are a number of steps that a Sole Practitioner could take to plan for the continuity of their law practice after they pass away.

  1. Preparing a will

First, it is advisable for practitioners to prepare a will that includes specific instructions for managing the practice posthumously.

While not mandatory, appointing a lawyer as an executor or, alternatively, including a lawyer among the executors of the will, can smooth the transition.

The practitioner’s posthumous wishes regarding his or her law practice can also be inserted either into the will or into a separate, non-binding letter of wishes.

  1. Appointment of a Legal Manager

After a Sole Practitioner’s death, immediate steps should be taken by the executor or administrator of the Sole Practitioner’s estate to appoint a Legal Manager to handle the law practice until its final disposition.

The Law Society has to be informed if a Legal Manager11See PD 3.7.2 at paragraph 12. or Practice Pal has been appointed.12See email from Law Society dated 8 February 2019 at 1:22 pm.

  1. Communication and documentation

Once a Legal Manager is appointed, staff and clients of the law practice should be informed about the appointment.

Fresh books of accounts should also be opened, and any clients’ funds received posthumously should be carefully managed.13See PD 3.7.2 at paragraph 13.

As things stand in our current legal framework, the fate of a law practice following the death of a Sole Practitioner hinges significantly on the preparations made during their lifetime.

While the Law Society also plays a critical supervisory role, much still depends on the arrangements the Sole Practitioner has put in place.

As such, Sole Practitioners are encouraged to plan ahead and prepare early for their death, as a well-planned transition would make things a lot clearer and smoother for all persons involved, including their personal representatives, as well as the staff and clients of the law practice who all depended on them when they were alive.

What Happens if a Sole Practitioner Loses Mental Capacity?

Unlike in the case of death, the Law Society could choose to intervene quickly in case a Sole Practitioner loses mental capacity.

The Law Society’s intervention, however, is limited only to situations where a practitioner is incapacitated by illness, accident or physical or mental condition to such extent that they are unable to attend to their law practice,14See section 74 of LPA read with paragraph 1(1)(g) of the First Schedule of the LPA. or if they lose mental capacity within the meaning of the Mental Capacity Act 2008.15See section 74 of LPA read with paragraph 1(1)(h) of the First Schedule of the LPA.

How Can a Sole Practitioner Prepare Ahead of Time for the Loss of Mental Capacity?

To mitigate disruptions to practice, Sole Practitioners must proactively make arrangements covering any potential incapacities or absences.

To that end, the Law Society has provided a couple of suggestions to plan for the situation when a Sole Practitioner loses mental capacity:

  1. Appointment of a cover practitioner

First, a Sole Practitioner could establish a standing arrangement or agreement with another practitioner, known as a “Cover Practitioner”, ahead of time to administer the former’s practice.

In the event of their sudden incapacity, the Cover Practitioner can stand in the place of the Sole Practitioner until the latter is able to return to work.16See PD 3.7.2 at paragraph 4.

For prudence, the Law Society encourages that the appointed Cover Practitioner be a partner or director of another law practice.17Ibid.

  1. Financial and legal preparations

The Law Society also encourages a Sole Practitioner to notify their law practice’s bank and insurers about who has authority to manage financial transactions and cover any legal liabilities in their absence.

Conclusion

Preparing for death or incapacity is a crucial aspect of managing a Sole Practitioner’s law practice.

By setting clear, actionable plans, Sole Practitioners can protect the interests of both their law practice and their clients, and ensure their professional responsibilities are maintained regardless of when and where death or incapacity might kick in.

Further, to safeguard clients’ interests, it may be necessary to provide the Law Society with more powers and flexibility to intervene into a Sole Practitioner’s law practice. The current restrictions on its powers and the potential practical difficulties in intervention mentioned in this article could be mitigated by further legislation.

Endnotes

Endnotes
1 Halsbury’s Laws of Singapore: Partnership and Agency Vol 15 at (180.003).
2 See section 74 of Legal Profession Act 1966 (the “LPA”) read with paragraph 2 of the First Schedule of the LPA.
3 See section 74 of LPA read with paragraph 1(1)(b) of the First Schedule of the LPA.
4 See The Law Society of Singapore, Practice Direction 3.7.2, “Sole Practitioners – Arrangements for Continuance of Practice” (“PD 3.7.2”) at paragraphs 8 to 9.
5 See PD 3.7.2 at paragraph 11.
6 See email from Law Society dated 8 February 2019 at 1.22 pm
7 See letter from the Law Society dated 26 October 2015 regarding M/s S Gunaseelan & Partners.
8 See PD 3.7.2 at paragraph 14.
9 Section 159(4) of the LPA.
10 See PD 3.7.2 at paragraph 14.
11 See PD 3.7.2 at paragraph 12.
12 See email from Law Society dated 8 February 2019 at 1:22 pm.
13 See PD 3.7.2 at paragraph 13.
14 See section 74 of LPA read with paragraph 1(1)(g) of the First Schedule of the LPA.
15 See section 74 of LPA read with paragraph 1(1)(h) of the First Schedule of the LPA.
16 See PD 3.7.2 at paragraph 4.
17 Ibid.

Associate Director
Selvam LLC
Assistant General Secretary, Probate Practice Committee
E-mail: [email protected]

Director
Aurora Law LLC
Member, Probate Practice Committee
E-mail: [email protected]