New York State Assembly Passes Power of Attorney Technical Correction Bill: Implications for Funds and Fund Managers

Introduction

The New York State Assembly recently passed a bill intended to clarify the application of New York's Power of Attorney ("POA") law,1 which was revised in significant respects on September 1, 2009. The Assembly bill amends the POA law to specifically exclude POAs granted primarily for business or commercial purposes and, if passed by the Senate and enacted into law, should eliminate most (if not all) effects that the September 1, 2009 changes to the law arguably had on POAs typically included in hedge fund and private equity fund subscription, partnership and other agreements. The bill would have retroactive effect to September 1, 2009.

The Current Law

As amended effective September 1, 2009, the current POA law appears to apply to POAs granted in business and commercial contexts in addition to POAs granted in personal financial/tax/estate planning contexts. Certain features of the current POA law that were added in the September 1, 2009 amendment include the following:

Form Requirements. Covered POAs must comply with certain form requirements, including that they (i) be legibly printed in type at least 12 point in size (or equivalent if in writing), (ii) be signed and acknowledged before a notary by both the principal (i.e., the grantor of the POA) and the agent (i.e., the attorney-in-fact pursuant to the POA), and (iii) contain the precise wording of certain cautionary language (available here) describing the nature of the powers being created and the agent's duties to the principal. Revocation. Each newly executed POA automatically revokes all POAs previously executed by the principal (except as otherwise provided in the new POA), and a principal may also revoke a POA at any time by delivering a written, signed and dated revocation to the agent. Fiduciary Duty. An agent under a POA is expressly stated to be a fiduciary for the principal with a duty to act in accordance with any instructions from the principal or, where there are no instructions, in the principal's best interest. Although its applicability to POAs granted in business and commercial contexts is uncertain, the current POA law's apparent broad application arguably has implications for POAs typically included in hedge fund and private equity fund subscription, partnership and other agreements. Such POAs generally permit fund managers to execute certain documents and take certain other actions on behalf of investors, including, without limitation, to sign fund and...