Power of Attorney

 Power of attorney (POA) is a legal authorization that gives a designated person, termed the agent or attorney-in-fact, the power to act for another person, known as the principal. The agent may be given broad or limited authority to make decisions about the principal's property, finances, investments, or medical care.

Power of attorney is most frequently used in the event of a principal's temporary or permanent illness or disability, or when the principal is unable to be present to sign necessary documents.

A power of attorney can end for several reasons, such as when the principal revokes the agreement or dies, when a court invalidates it, or when the agent can no longer carry out the responsibilities outlined. In the case of a married couple, the authorization may be invalidated if, the principal and the agent divorce.

There are many types of powers of attorney. A “durable” power of attorney takes effect when the document is signed while a “springing” power of attorney comes into effect only if and when the principal becomes incapacitated. A power of attorney may also be limited to medical matters, enabling the agent to make crucial decisions on behalf of an incapacitated person.

Most powers of attorney documents authorize an agent to represent the principal in all property and financial matters as long as the principal’s mental state of mind is good. If the principal becomes incapable of making decisions for themself, the agreement would automatically end.

Types of Powers of Attorney

 1. General Power of Attorney

The general power of attorney is a broad mandate that gives an agent a lot of power to handle the affairs of a principal. The agent or the person designated to act on behalf of the principal is charged with handling several tasks. The tasks include buying or disposing of real estate or even entering into contractual relationships on the principal’s behalf.

 2. Limited or Special Power of Attorney

An individual looking to limit how much the agent can do should choose limited or special power of attorney. Before signing to notarize a limited power of attorney, a person needs to be as detailed as possible about how much the agent should handle. If an individual is not clear what should fall under the special power of attorney, it is best to speak to a legal counsel.

 3. Durable Power of Attorney

The durable type of power of attorney is only effective during the period a person wished to get someone else act on his or her behalf. A non-durable POA will end the moment it is revoked or when the expiration date specified arrives. However, what will happen in the event the agent becomes debilitated? Will the POA still be applicable?

In such a case, the principal would prefer that the POA remains active even if he or she becomes unable to communicate. For example, if the principal becomes comatose, but would prefer that the spouse be the agent, it can be specified in the form of a durable power of attorney. The POA gives power to the spouse to make decisions even when the principal is comatose.

 4. Medical or Healthcare Power of Attorney

If the principal becomes very ill, he or she reserves the right to decide the quality of care preferred. Medical or health care POA authorizes the agent to make decisions on behalf of the principal in case of a life-threatening illness. Most health POAs fall under the durable kind because they take into consideration the fact that the principal may be too sick to make their own decisions.

In all the instances above, the principal should speak to a counsel before choosing an agent. In addition, it is best for the principal to get the counsel to walk him or her through every step of notarizing a power of attorney in order to understand what should go into the document.

Banks will make information available about POAs to their clients using clear, simple language. These areas are outlined below

1. “The bank may offer its own form of POA to clients, but will not require such form to be used.”4 It is important for clients to be aware that creating a new POA – including a bank POA – normally has the effect of revoking (cancelling) any prior POA.5 This may seriously affect estate plans previously put in place. ACE recommends seeking independent legal advice before creating any new POA.

 2. The bank will provide “(g)eneral information about bank-form POAs and POAs.”6 The federal, provincial and territorial Ministries responsible for seniors have collaborated to produce a booklet called What Every Older Canadian Should Know about Powers of

Attorney (for Financial Matters and Property) and Joint Bank Accounts.7 The banks may satisfy this Commitment by providing a copy of the booklet to their clients. Alternatively, the bank may provide its own publication as long as it includes the same material. 

3. The bank will provide its “minimum requirements for an account to operate under the authority of a POA.”8 This may include presenting either the original POA document, or a notarial copy of the POA, to the bank along with valid ID. A notarial copy is one that has been certified by a lawyer to be a true copy of the original document. At times, banks will request a notarial copy as an alternative to their keeping the original. This is usually done as a convenience to the attorney, who may need to present the original document at more than one place.

 4. “If a POA or attorney’s instructions require further review when presented to the bank, except where the review is related to potential financial abuse or other illegal activity, the bank will inform the client or attorney that a review is required and provide a general timeline for the review and that certain reviews may require more time.”9 Where the review is related to suspected financial abuse, the bank may choose not to advise you of the review, and/or may be prohibited by law from doing so. It should be noted that banks are more likely to scrutinize "do-it-yourself" POA kits, including kits provided by the Public Guardian and Trustee, than POAs drawn up by a lawyer. A bank may seek assurances from the lawyer who drew up the POA that it is valid. However, a lawyer can only attest to the document’s validity at the time that it was executed (signed): the grantor of the POA may have since revoked it, or caused it to be revoked by creating a new POA, without the lawyer’s knowledge.

 5. The bank will advise regarding “(t)he recourse available to clients or attorneys where a bank refuses to act on a POA or attorney instructions.” 10 ACE recommends taking the following steps in the face of such a refusal: First, contact your bank’s Office of the Ombudsman. All five major banks in Canada have an Ombudsman’s office in place. The Ombudsman’s office is expected to be an impartial service designed to resolve conflicts between a bank and its clients. If the issue cannot be resolved by your bank’s Ombudsman, contact the Ombudsman for Banking Services and Investments (“OBSI”) at www.obsi.ca. Please confirm that your bank participates in the program by checking the OBSI website. It is important to note the OBSI will not look into complaints that have not first been reviewed by your bank’s own Ombudsman. The OBSI offers an alternative dispute resolution process, and while its recommendations are not binding, they are very often accepted by banks and clients.

Advance Against Fixed Deposit Receipts

 When money deposited by a customer is not repayable on demand and is payable only after the expiry of a specified period from the date of deposit or after a specified period of notice, such deposit is called a fixed deposit. The banker acknowledges such a deposit by a receipt known as Fixed Deposit Receipts.

Sometimes, it happens that customers require advances form the banker on the security of fixed deposit receipt maturing at a future date, or alternatively he may request the banker for the repayment of the deposit before its due date. This term is commonly known as an advance against fixed deposit receipts.

Practice and Procedure for an advance against fixed deposit receipts

1. Advances should, as a rule, be granted to the person in whose name the deposit stands.

2. If the deposit is in two or more names, payable to them on their joint signatures, they must all discharge the receipt by signing across a revenue stamp, as also all signing a memorandum of the pledge. The loan documents should also be signed by all of them and the loan amount should also be paid under joint signatures.

3. In case the fixed deposit is in the name of two or more persons and, is “payable to either or survivor”, no advance should be made to one of the parties on the security of the deposit receipt, as no single depositor is entitled to raise a loan on the security of the deposit without the consent of the other or all others. The desirable course is that all depositors should sign the documents including the demand promissory note and the letter of lien. Where this is not possible a letter of authority, signed by all authorizing the applicant to borrow money and to sing the documents and to discharge the receipt and pledge the same with the bank as security, should be obtained.

4. No advance should ordinarily be granted against a deposit standing in the name of a minor. In special cases, banks can make advances where a minor is a son or daughter of a guardian when a declaration from the guardian should be obtained standing that the money belongs to him, but has been kept in the minor’s name as a matter of convenience and, the amount of advances is intended to be utilized for the benefit to the minor.

5. The deposit receipt should be discharged by all the depositors on an appropriate revenue stamp on the reverse of the receipt. Where the receipt is payable “jointly” or, to “either-or survivor,” discharge by all the depositors must be obtained. The signatures must be tallied with the specimen signatures in the bank’s record.

6. The discharged receipt must be surrendered to the bank along with a memorandum of pledge signed by the depositor authorizing the bank to appropriate the proceeds of the receipt on maturity towards the repayment of the advance in case the customer fails to pay the loan on the due date. This letter is usually known as ‘Letter of Appropriation.’

7. The bank’s lien should be prominently noted in the deposit register, ledger, and, also, on the face of the receipt, under the signature of an authorized officer to avoid any complications at some later stage.

8. In case, loan in advanced against a fixed deposit receipt in the name of a third party, the fixed deposit receipt duly discharged by the depositor should be obtained along with the letter of authority, authorizing the bank to allow the loan to the person named in the letter against the receipt and, t apply the proceeds of the deposit towards payment of advance in case of default to liquidate the loan on the due date. Lien is registered in the bank’s books and on the deposit receipt.

9. Generally, no advance is granted by a branch against the fixed deposit receipt issued by another branch of the same bank. If at all such an advance is granted in a special circumstance, the branch granting the advance should get the discharge on the receipt on revenue stamp duly verified by the issuing branch and obtain confirmation that a lien is noted in the fixed deposit register with the branch who issued the receipt before granting the advance. As a further precaution, the lending branch should ascertain that no lien is already noted against the deposit receipt at the issuing branch. A letter should be taken from the borrower addressed to the issuing ranch t remit proceeds to the lending branch of maturity of the receipt issued by another branch of the bank, the depositor must be properly identified.

10. As a rule, no advance is to be allowed against a fixed deposit receipt issued by another bank become of obvious legal complications. A fixed deposit receipt is not transferable. So, if such advance is to be made then a deed of assignment is to be executed by the depositor in favors of the bank from whom he is going to borrow money and, that deed will attract ad valorem with the bank concerned to the effect.

11. In the case of an advance against fixed deposit receipt in the name of a limited company, the same procedure is followed as stated above but the bank should see that

• An inquiry is made to ascertain that no prior assignment in respect of the fixed deposit exists;
• A duly authenticated copy of the resolution of the directors to borrow against the receipts is kept on record;
• The bank’s charge over the fixed deposits has been registered with the Registrar, Joint Stock Company within 21 days of the creation of the charge.

Repayment

Usually, advances against fixed deposit receipts are automatically adjusted on maturity form the proceeds of the deposit receipts.

If, however, repayment is made before the due date, the deposit receipt is returned to the customer after the cancellation of the discharge thereon. All notes of lien taken in the deposit register and ledger are also canceled.

Documents

1. Demand Promissory Note
2. The fixed deposit receipt duly discharge on revenue stamp by the depositor and pledged to the bank.
3. Letter of authority duly signed by the depositor in favors of the bank to adjust the advance form the proceeds of fixed deposit on maturity for liquidation of loan or overdraft account.
4. Letter of Continuity (in case of overdraft only)
5. Letter of lien executed by the depositor. This generally contains the clause of set-off.
6. Letter of guarantee executed by the depositor (if the deposit stands in the name of a third party).

Advance against the savings account balance

The most popular of the secured loan is the loan that has collateral savings in the same bank. This collateral can be easily checked and its value is established with no loss of time, as just a reference to the ledger account will reveal it.

An assignment is given by the borrower and the savings balances are earmarked to show pledge of the account to secure a loan. Interest in savings account continues to be credited to the account at the usual rate of interest.

Lien on balances in current or savings account of third parties

Advances are sanctioned on the security of current or savings bank account against credit balances of third parties by obtaining a letter of lien. After the advance has been made the bank’s lien should be noted in the ledger against the account of the party guaranteeing the advance.  

As a matter of fact, the bank has the right of set-off in such a case which is created by agreement and by operation of law. By taking a letter of lien on stamped paper from the guarantor earmarking the balance in his account as a security for the advance, the banker can refuse to honor cheques drawn on the balance is reduced below the stipulated amount. If also gives the bankers a right to adjust the loan through set-off if the borrower makes a default.

Documents

1. Demand Promissory Note
2. Letter of continuity
3. Letter of lien from the account holder earmarking balance in his account. This creates a right of set-off both by agreement and by operation of law.

Though banks are not bound to allow such advances, it is customary to do so, as the depositor may require the facility for an urgent need which could not have been anticipated at the time the money was deposited.

For security point, it is certainly the most valuable, as there is no problem of valuation or inquiring about the title or the problem of storage and costs associated with storage. While making advances against the fixed deposit receipt, the banker should observe the following precautions.

a customer of your branch approaches you for an advance against fixed deposit of 50000 of another bank issued in his favor. What action would take in this case?

As a rule, no advance is to be allowed against a fixed deposit receipt issued by another bank become of obvious legal complications. A fixed deposit receipt is not transferable. So, if such advance is to be made then a deed of assignment is to be executed by the depositor in favors of the bank from whom he is going to borrow money and, that deed will attract ad valorem with the bank concerned to the effect.

Syndication Advance, Loan Syndication

Loan syndication is the process of involving several lenders in providing various portions of a loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that can manage lender's risk exposure levels. Thus, multiple lenders will work together to provide the borrower with the capital needed, at an appropriate rate agreed upon by all the lenders. It is common in mergers, acquisitions and buyouts, where borrowers need very large sums of capital. 

In case of large loan, consortium/ syndication should be preferred. Consortium/ Syndication means joint financing by more than one bank to the same clients against a common security basically, to diversify the risk. All consortium/ syndicated banks have a pari passi charge on the security.

Consortium loan means joint finance by more than one bank to the same party against a common security. The entire security remains charged to all these banks for the total advances. All the consortium banks have a Pari Passu charge on the security.

 

Adv & Disadv:

 

Advantages of Syndicated Loans

 

In addition, economists and syndicate executives contend that there are other, less obvious advantages to going with a syndicated loan. These benefits include:

 

     Syndicated loan facilities can increase competition for your business, prompting other banks to increase their efforts to put market information in front of you in hopes of being recognized.

     Flexibility in structure and pricing. Borrowers have a variety of options in shaping their syndicated loan, including multicurrency options, risk management techniques, and  prepayment rights without penalty.

     Syndicated facilities bring businesses the best prices in  aggregate and spare companies the time and effort of negotiating individually with each bank.

          Loan terms can be abbreviated.

     Increased feedback. Syndicate banks sometimes are willing to share perspectives on business issues with the agent that they would be reluctant to share with the borrowing business.

     Syndicated loans bring the borrower greater visibility in the open market. Bunn noted that "For commercial paper issuers, rating agencies view a multi-year syndicated facility as stronger support than several bilateral one-year lines of credit."

 

Eligible Securities for advancing Loans :

        100% of deposit under lien against the loan.

        100% of the value of government bond/savings certificate under line.

        100% of the value of guarantee given by Government or Bangladesh Bank.

        100% of the market value of gold or gold ornaments pledged with the bank.

        50% of the market value of easily marketable commodities kept under control of the bank.

        Maximum 50% of the market value of land and building mortgaged with the bank.

    50% of the average market value for last 6 months or 50% of the face value, whichever is less, of the shares trader in stock exchange.

 

Undesirable Securities and Prohibited Advances :

        Unquoted shares

        Shares of private limited company

        Partly paid shares

        Shares standing in the thirty party‘s name

        Temporary receipt for shares

        Large block of shares of any one company

        Uncalled capital

        Second mortgage

        Sub-mortgage

        Advances against capital assets

        Goods in godown having no independent access

        Goods where title and purchase price cannot be verified.

        Insurance policies taken out for the benefit of the borrower‘s wife and children

        House property where original title deeds not available.

        Hypothecation advance against stock in process

        Accommodation bill

        Truck receipt of bank‘s unapproved Transport Agencies

        Advance against truck receipt for unreasonably long period

        Shares of other banking companies

        Advances opposed to the lending policy of the bank

        Equitable assignment of debt.

 

 

 

Industrial Sickness :

An industrial company (being a company registered for not less than five years) which has at the end of any

financial year accumulated losses equal to or exceeding its entire net worth.

 

Causes of Sickness :

01. Mismanagement or inefficient management.

02. Faulty project planning and site selection

03. Inappropriate financial structure

04. Inefficient working capital management and financial budgeting

05. Absence of costing and pricing

06. Inefficient system of record keeping