There have been several cases recently of large-scale abuse of vulnerable people by famous names. Some of these left large sums of money although post mortem law suits exceeded these amounts.
There’s new official guidance from The Law Society on how to administer insolvent estates, and in two words this is ‘very carefully’. Much the same applies to a solvent estate with damage claims against it. Indeed, an executor needs to be scrupulously thorough when winding down any estate.
More Pressure on Executors to be Especially Careful
Ignorance of the law is unfortunately a poor excuse. The Law Society has once again warned that personal liability may apply to executors who make mistakes. We publish highlights from the guide here with particular reference to who may administer an insolvent estate, that administrator’s liability implications, and uncertainty regarding the extent of these liabilities
The Laws Applying to the Administration of Deceased Estates
Today’s Wills and Probate describes a complex set of rules applying as follows:
1… the Administration of Estates of Insolvent Deceased Persons Order 1986 has precedence over the Insolvency Act 1986 in terms of insolvent estates.
2… The Insolvency (England and Wales) Rules 2016, and the 2017 amendments of the Insolvency (Miscellaneous Amendments) Regulations 2017 however require the Deceased Persons Order applies in conjunction with those Insolvency Rules.
3… The Insolvency Rules furthermore stipulate a personal administrator of an insolvent estate must first obtain an insolvency administration order, as opposed to the debtor’s petition route in terms of the Insolvency Act
Limitations on Who May Administer an Insolvent Estate
Therefore, it’s essential to seek professional advice before taking on an estate that is, or potentially might become insolvent. A personal administrator requires guidance from the Court under an administration order, while an insolvency practitioner needs a bankruptcy order.
The Law Society guide is at pains to point out the necessity of allowing for the possibility of any estate becoming insolvent following new claims by creditors. They should endeavour to protect their liability risks by following these tips:
1… Retain asset valuations sold to settle liabilities under the Insolvency Act
2… Don’t assist creditors petitioning grants; leave it up to them
3…Bankruptcy costs take precedence; don’t rush to pay funeral costs
4… Always respect the principle of paying higher order creditors first
5… Ask the Court to determine retention for uncertain future liabilities
Higher Order Creditors of an Insolvent Estate
In the case of an insolvent company creditors are paid in this order:
1… Holders of fixed charges / creditors with proprietary interests
2… Expenses resulting from the administration of the estate
3… Preferential creditors, followed by holders of floating charges
4 … Unsecured creditors, and then finally the shareholders
In the case of an insolvent debtor the following priority debts take precedence:
1… Mortgage and / or rent arrears
2… Council arrears
3… Gas / electricity arrears
4… Maintenance (children / ex-partner)
5… Income tax and / or VAT arrears
6… Court decisions, e.g. traffic fines
The rest of us have to wait patiently in a queue to share anything left over. This is a timely reminder to think twice before lending money.