FAQs – DECEASED INSOLVENTS – DEBTOR DYING BEFORE PETITION

These FAQs are to assist official receivers in understanding the subject and should be read in conjunction with the more detailed guidance given in the main body of the Technical Manual chapter.  Links to the relevant parts of the Technical Manual are given within the FAQs.

How is it possible to have a deceased insolvent, surely a person’s debts die with them?

It is a common misconception that a person’s debts ‘die’ with them.  In fact, the deceased’s estate in death will still owe the money, which must be paid from available assets in the estate before property can be passed to beneficiaries under the will.  If there are insufficient assets in the deceased estate, then the estate will be insolvent (see paragraph 54.1).

What happens if a deceased estate is insolvent?

A creditor, or the deceased’s personal representative (usually the person dealing with the will), can make application to court for the estate to be dealt with in bankruptcy, under an insolvency administration order.  This would mean that the estate could be dealt with in an orderly fashion (see paragraph 54.2)

Who deals with these types of orders?

On the making of a insolvency administration order the official receiver is appointed receiver and manager, as in a bankruptcy, following which a trustee (who may also be the official receiver) will be appointed.  In fact, most of the features of an insolvency administration order are similar to a bankruptcy (see paragraph 54.14).

In what ways is an insolvency administration order similar to a bankruptcy?

The bankruptcy provisions of the Act apply equally in the case of an insolvency administration order, with certain necessary exceptions and differences (see paragraph 54.1). 

What are the main ways in which the administration of an insolvency administration order differs from a bankruptcy order?

The main ways that the administration differs are that the debtor is known as a deceased insolvent, and not a bankrupt (see paragraph 54.3), and in the absence of the debtor to assist with providing information regarding his/her  financial affairs, that duty falls on the personal representative (see paragraph 54.17).  Another difference is that the trustee’s title to the assets begins with the date of death and not the date of the order – this is to allow recovery of assets disposed of after death (see paragraph 54.25).

You mention that the duty to co-operate falls upon the personal representative.  How can I find out who that is?

The personal representative is either the executor of the will or, where the person died without a valid will, the person known as the administrator.  In short, the person with responsibility to deal with the deceased’s estate and arrange for their burial.  The executor is generally named in the will, and the details of an administrator can be obtained from the organisation that keeps a record of the appointment of administrators.  The personal representative may have been served with a copy of the petition for the insolvency administration order, so their details may be on that, or they may be known to the insolvent’s bankers, solicitors or accountant (see Part 3).

If the personal representative is the executor or administrator, it is possible that they are a relative of the deceased.  Does this matter?

It only matters in as much as you should tread carefully, as it were, when dealing with the personal representative, to avoid causing unnecessary bereavement-related distress (see paragraph 54.18).

You mention that the personal representative has the duty to arrange for the burial of the deceased.  How can they do this if the estate is insolvent?    

The provisions of the Act, as amended, allow for the reasonable funeral costs to be paid out of the estate before any of the preferential or other unsecured creditors (see paragraph 54.28).

Does the official receiver need to issue any special notices?

Notices similar in design and audience to those in bankruptcy are issued, except that they should be headed ‘In the matter of the Administration of Deceased Persons Order 1986’ and should refer to the insolvent as the deceased debtor and not the bankrupt (see paragraph 54.16).

The rules on survivorship provide that a property interest in a joint tenancy passes automatically to the surviving party on death.  Doesn’t this mean that that interest would be lost to the estate?

As matters would normally operate, it would follow that it would (the property passing to the surviving party immediately before the estate vests). The Act provides that such automatic passing of property can be reversed in the interests of the creditors (see paragraph 54.67)

Can there be exempt property in the case of a deceased insolvent?

Tools of the trade cannot be treated as exempt, but household equipment, etc. can be treated as exempt if it is necessary for the family of the deceased debtor (see paragraph 54.33).

Can an insolvency administration order be annulled?

An insolvency administration order can be annulled on the same grounds as a bankruptcy order – i.e., on the grounds that debts and costs paid in full or that it ought not to have been made (see paragraph 54.35).

I presume that the debtor is not discharged?

That is right, there are no discharge provisions in relation to a deceased insolvent (see paragraph 54.36).