White Maund LLP present to STEP members on insolvent deceased estates

We were pleased to accept an invitation from the Sussex chapter of the Society of Trust and Estate Planners (‘STEP’) on a wild and windy Wednesday evening at Hollingbury Golf Club to the north of Brighton to present on the above subject.

As insolvency practitioners with many years of experience in assisting individuals and companies with debt problems this is an area we only occasionally come across, having said that I have a case on at the moment being administered under the Administration of Insolvent Estates of Deceased Persons Order 1986 (‘DPO’). We also only last week advised a solicitor regarding paying funds to a bankrupt beneficiary, which could
result in having to pay out twice if the beneficiary was not entitled to the funds as they fell into the bankruptcy estate.

Effectively the estate under a DPO is administered according to the bankruptcy legislation contained in the
Insolvency Act 1986 (‘IA86’) and will be administered by the Trustee in Bankruptcy (‘TiB’) who will be a Licensed Insolvency Practitioner (‘IP’) and has powers of investigation and a framework for dealing with the claims of creditors.

The DPO provides for carve out provisions that allow Personal Representatives (‘PR’) to undertake a quasi-bankruptcy procedure to deal with the claims of creditors. Unfortunately the PR does not have the full range of general or investigative powers available to the IP and this can leave the PR open to claims from creditors, in some cases many years after the date of death.

Like in bankruptcy the DPO has a provision that makes all post-petition dispositions void unless a subsequent
validation order is sought from the Court. The interesting difference between a DPO and bankruptcy under the IA86 is that under a DPO the date of presentation of the petition is deemed as being the date of death. Therefore if a DPO is applied for, by either the PR, a creditor or the Supervisor of an Individual Voluntary
Arrangement, and the Court makes the order then all payments made out of the estate by the PR are void. The application for a DPO can be made many years after death and can therefore cause considerable difficulties.

The TiB can also investigate various transactions that occurred prior to death and potentially overturn the
transactions putting either the PR or beneficiaries at risk of action. The rights of the survivor of a joint
tenancy will also be affected by the making of a DPO and the position immediately before death will be restored on an application by the TiB under S.421A IA86. On the making of the claim to the Court the survivor will have to return an amount not exceeding the value of the amount lost to the estate. S.421A IA86 applies to all DPOs made within five years of death.

There are therefore key considerations for a PR to consider if the deceased estate is insolvent or at risk of becoming insolvent. Such cases are relatively rare and most PRs will be unfortunate to encounter such a case during their career. However the consequences can be quite severe for the PR if the estate is insolvent and case law provides examples of PRs losing testamentary or administration costs or even having damages
claims made against them as in the case of Dick v Kendall Freeman (re Vos) 2006.

If you would like a copy of the slides or wish to discuss any case on a no names basis our team will be pleased to assist you and can provide initial advice free of charge. We have built up considerable knowledge in this area and would be prepared to present to your team on this interesting and increasingly relevant area.
There is also increasing commentary on the UK’s ageing population in all forms of media and more people appear to be experiencing debt problems later on in life. With increasing longevity and high personal care costs it remains to be seen if problem debts in older age become more widespread.

We have also dealt with an interesting case in the health sector where a sole director/shareholder passed away
unexpectedly. By using the powers contained in the IA86 to seek an Administration Order against the company we were able to continue to trade the business and sell the same on the open market. The result was that all creditors were paid in full and substantial funds were passed to the PR for the benefit of the beneficiaries.