PART 1
June 2013
DEBTOR DYING PRIOR TO THE PRESENTATION OF A BANKRUPTCY PETITION
54.3 Insolvency administration order and deceased debtors
Where a debtor dies prior to the presentation of a bankruptcy petition, any order for the administration in bankruptcy of his/her insolvent estate is referred to as an insolvency administration order [note 1], and not a bankruptcy order.
Similarly, a person subject to such an order is known as a deceased debtor and not a bankrupt [note 2].
Where a debtor dies after the presentation of a bankruptcy petition, the guidance in Part 2 of this chapter should be followed.
54.4 Presentation of a petition for an insolvency administration order
The persons who may present a petition for an insolvency administration order are the same as those who may present a petition for bankruptcy (see paragraph 45.82), except that the debtor him/herself cannot, obviously, present the petition [note 3].
The power of the debtor to present the petition is instead given to the debtor’s personal representative (see paragraph 54.55) [note 4] [note 5], in relation to which no deposit is payable [note 6].
54.5 Grounds for an insolvency administration order
One of the requirements for making an insolvency administration order is that the debt, or one of the debts, in respect of which the petition is presented is payable as at the date of the petition, or has since become payable, and has not been paid or secured for, or has no reasonable prospect of being able to be paid when it falls due [note 7].
The other essential requirement is that it is reasonably probable that the estate is insolvent [note 8]. This requirement must be demonstrated to the court to obtain an insolvency administration order. There is no statutory demand requirement [note 9] and the court has no power to refer a case to an insolvency practitioner for a report (see paragraph 45.145) [note 10].
54.6 Petition by a creditor for a future debt
In addition to a creditor being able to petition in respect of a debt for a liquidated sum equal to or exceeding the bankruptcy limit [note 11], a creditor may petition for a future debt if, due to the death of the debtor, there is no reasonable prospect of payment being made when the debt falls due and there is a reasonable probability that the estate will be insolvent [note 12].
54.7 Petition by the supervisor of a voluntary arrangement
A petition may be presented by a supervisor of an individual voluntary arrangement (IVA) which has been approved prior to the debtor’s death and where continuance of the arrangement is dependent on the receipt of payments from the debtor’s future earnings.
The supervisor does not have to demonstrate default with the terms of the arrangement, but merely needs to show to the court that, without the debtor’s continuing involvement in the arrangement, it is not feasible for it to continue.
Neither a supervisor nor a creditor can petition on the grounds that the IVA contained inaccurate or misleading information, as the relevant provision [note 13] is not extended to deceased debtors.
An insolvency administration petition shall, unless the court directs otherwise, be served on the personal representative (see paragraph 54.55) of the deceased and may be served on such other persons as the court may direct [note 14]. This latter provision enables service where a personal representative has not been appointed.
If a liquidator (within the meaning of the EC Regulation on Insolvency Proceedings – see paragraph 41.12) has been appointed in another EU state, the petition shall also be served on him/her.
54.9 Restrictions on dispositions of property
A personal representative (see paragraph 54.55) is restrained from disposing of any property of the debtor in the period from the date of the presentation of the petition for an insolvency administration order to the date the estate vests in the trustee (see paragraph 54.25) [note 15]. If the disposition is in good faith and for value then there can be no recovery by any subsequently appointed trustee in respect of the disposition [note 16]. It is likely that, for a disposal to have been in good faith, it will have had to have been made without notice of the petition. Ratification by, or consent of, the court (see paragraph 54.10) would remove any uncertainty here.
In respect of this provision, it is likely that the date of the presentation of the petition should be the actual date, and not the deemed date (which is the date of death – see paragraph 54.25) [note 17].
54.10 Ratification of disposals
Any dispositions made by the personal representative in the relevant period (see paragraph 54.9) are void unless made with the consent of the court or subsequently ratified by it. Where a disposal is considered void, the related money or goods should normally be recovered for the estate (see paragraph 31.4B.92)
54.11 Administration proceedings in another court
A petition for an insolvency administration order may not be presented where proceedings for the administration of the deceased debtor’s estate have been commenced in another court [note 18].
An example of such proceeding would be civil proceedings commenced in the Chancery Division of the High Court for the administration of the estate. These proceedings may have been instigated by the personal representative (see paragraph 54.55) or any person interested in the estate such as a creditor, legatee (beneficiary under the will), or next of kin. Such proceedings may be transferred to the bankruptcy court where it appears that the estate is insolvent, thus enabling an insolvency administration order to be made [note 19].
54.12 Official receiver appointed as interim receiver
The court may, at any time between the date of the presentation of a petition for an insolvency administration order and the making of the order, appoint the official receiver as interim receiver to protect the assets [note 20] (see Chapter 2A).
Where so appointed, care should be taken by the official receiver to observe the terms of the order, which may restrict his/her duties as interim receiver and the assets to be dealt with by him/her (see Chapter 2A, Part 2) . In the absence of any such restrictions, the interim receiver has all the powers, duties and immunities of a receiver and manager [note 21] (see paragraph 2A.40) Immediate possession should be taken of the deceased debtor’s assets which should be protected pending the hearing of the petition. The personal representative (see paragraph 54.55) has a duty to co-operate with the interim receiver and provide him/her with details of the asserts comprised in the deceased debtor’s estate [note 22].
54.13 Commencement of the insolvency administration proceedings
Provided that the court is satisfied regarding the grounds (see paragraph 54.5), it may make an insolvency administration order [note 23] [note 24].
The proceedings commence with the making of the order [note 25].
54.14 Appointment of the official receiver as receiver and manager
On the making of an insolvency administration order (see paragraph 54.3), the official receiver is appointed receiver and manager of the deceased debtor’s estate, which has the effect of removing control of the estate from the personal representative [note 26] (see paragraph 54.55 for action to be taken as regards contact with the personal representative, and paragraph 54.17 regarding the personal representative’s duties).
54.15 Duty of the official receiver to investigate the deceased’s affairs
The official receiver has no statutory duty to investigate the conduct and affairs of the debtor unless he/she thinks fit, but may make such report (if any) to the court as he/she thinks fit [note 27].
In practice, there is unlikely to be any merit in an investigation into the affairs of the debtor, but if the official receiver considers that there is prima facie evidence of wrongdoing by someone other than the deceased debtor, he/she may report it as appropriate (see Chapter 14 of the Enforcement Investigation Guide). In particular, there is an offence of receiving, in the 12 months before death, property obtained on credit by the deceased [note 28].
54.16 Notices and publication of the making of an insolvency administration order
On the making of an insolvency administration order, notices similar to those issued on the making of a bankruptcy order should be issued (see Chapter 4).
The notices should be headed:
‘In the matter of the Administration of Insolvent Estates of Deceased Persons Order 1986’
The notices should refer to the making of an insolvency administration order (not a bankruptcy order) and state that the debtor is deceased. The deceased debtor should not be referred to as ‘the bankrupt’, but as ‘the deceased debtor’.
Similarly the official receiver should arrange for the mandatory Gazette notice to be published and, at the official receiver’s discretion, a local advertisement (see Chapter 5).
54.17 Duties of a personal representative after the making of an insolvency administration order
Where an insolvency administration order has been made, the personal representative’s (see paragraph 54.55) duties with regard to possession of the estate are similar to those of a bankrupt. The personal representative should notify the official receiver of any assets which may be claimed for the estate, provide an inventory of the estate, attend on the official receiver at such times as reasonably required and provide information regarding the deceased’s assets and affairs (see paragraph 13.26) [note 29].
If the personal representative does not fulfil these obligations, he/she is guilty of contempt of court and may be punished accordingly [note 30]. Similarly, the personal representative is liable to a private examination in the event of non-cooperation (see Chapter 23).
54.18 Contact with the personal representative
The official receiver should make contact with the personal representative as soon as possible following the making of the insolvency administration order. The making of the order has the effect of removing control of the estate from the personal representative (see paragraph 54.55) and it is therefore important that no dealings are carried out by the personal representative subsequent to the order.
The personal representative may be a professional such as a solicitor or banker, or may be a relative or acquaintance of the deceased. In the latter case, the official receiver should, in carrying out his/her duties, exercise care to avoid adding to any bereavement distress which the relative may be experiencing.
Paragraph 54.20 contains guidance on the notice to be issued to the personal representative.
54.19 Statement of affairs requirement
There is a requirement for the personal representative or, where there is no such person, such other person as the court may direct, to lodge a statement of affairs within 56 days of the making of the insolvency administration order. This period may be extended by the official receiver or the court, or the personal representative may be released from the requirement [note 31]. Due to the information that will be contained in the statement (see paragraph 54.21), the duty to provide one should generally be enforced.
54.20 Notice to personal representative requesting a statement of affairs and other information
As soon as possible after the making of an insolvency administration order, the official receiver should send the statement of affairs [note 32] to the personal representative with the standard notice [note 33]. The standard notice also contains a supplementary information sheet for completion by the personal representative, and requires that he/she provide a copy of the death certificate and a copy of the last will made by the deceased.
54.21 Content of statement of affairs
The statement of affairs (see paragraph 54.19) should show the position of the estate at both the date of death and the date of the order. Supporting schedules, such as accounts or a deficiency account may also be required by the official receiver.
The statement should include details of disposals of assets, and a receipts and payments account for the period between the date of death and the date of the order.
54.22 Preliminary information questionnaire
It will generally not be necessary for the official receiver to require the completion of a preliminary information questionnaire (PIQ) as many of the questions asked therein relate to information that will be contained in the statement of affairs (see paragraph 54.21).
If, having inspected the statement of affairs and other information provided by the personal representative, the official receiver considers completion of the PIQ is necessary, it may be issued to the personal representative. If this is done, the PIQ must be amended so that the questions clearly relate to the affairs of a deceased debtor and not a bankrupt.
In view of the need to deal sympathetically with a relative that is the personal representative of the deceased, it may be more appropriate for any PIQ to be completed at interview, or for matters to instead be dealt with in a narrative statement (see paragraph 54.23).
54.23 Interviewing the personal representative
The information contained within the statement of affairs (see paragraph 54.20) and supplementary information sheet (see paragraph 54.20) should enable the official receiver to make a decision whether an interview with the personal representative is necessary. In reaching this decision, the official receiver should particularly take account of asset disposals between the date of death and the date of the insolvency administration order (see paragraph 54.9) the recentness of death and of any trading activity by the deceased. Details of disposals may be found in sheets G and H of the statement of affairs [note 34] .
If the personal representative has not provided the required information by the date requested, he/she should be invited to attend for interview.
Depending on the complexity of the deceased’s affairs, a narrative statement may be sufficient for the official receiver’s purposes, with a PIQ being used as an aide mémoire (see also paragraph 54.22).
54.24 Appointment of a trustee
Where there are sufficient assets to attract the nomination of an insolvency practitioner as trustee, a meeting of creditors should be held (see Chapter 16), or a Secretary of State appointment made (see Chapter 17), as appropriate.
Where a meeting is held, the usual rules and procedures apply except that the proof of debt forms sent out with the notices should bear the date of death as being the date to which claims should be made [note 35].
Where no meeting is held, and no Secretary of State appointment sought, the official receiver will become trustee.
[note 36]
54.25 Trustee’s title to assets
The trustee’s title to assets, including life policies, etc., dates back to the date of death of the deceased debtor as if the presentation of the petition, the insolvency administration order and death all occurred on the dame day [note 37]. This date is sometimes known as the ‘deemed date’.
Only assets which form part of the deceased’s estate (see paragraph 54.26) at the time of death vest in the trustee.
54.26 Extent of the deceased debtor’s estate
An insolvency administration order is made in relation to ‘the insolvent estate of a deceased person’ and the estate, in this context, comprises that property which passes under the deceased person’s will or intestacy [note 38]. Such estate would not include property held on a joint tenancy (see paragraph 54.64).
The power to bring proceedings over or in respect of property (a right of action – see Chapter 31.9) would be property of the estate [note 39].
54.27 Debts in the proceedings
Debts in insolvency administration proceedings are defined as they would be in relation to a bankruptcy [note 40] (see Chapter 40, Part 1) and future and contingent liabilities at the date of the deceased debtor’s death are valued in the same way as in bankruptcy, at the discretion of the trustee (see Chapter 40, Part 1) [note 41].
The order of payment of debts and costs is also the same as in bankruptcy, with exception of funeral and testamentary costs being a pre-preferential debt (see paragraph 54.28).
54.28 Claim for funeral and testamentary expenses by personal representative
The official receiver, as trustee, must have regard to any claim by the personal representative (or similar) for reasonable funeral, testamentary and administrative expenses incurred [note 42], provided the estate has sufficient funds in hand.
These claims have priority over the preferential debts [note 43] [note 44] and should be detailed on sheet G of the statement of affairs (see paragraph 54.21). Care should be taken by the official receiver, as trustee, that account is taken of such expenses (whether previously notified to him/her or not) before any distribution is made (see Chapter 36A, Part 6).
54.29 Assessment of claimed funeral expenses
In assessing what are reasonable funeral expenses (see paragraph 54.28), the official receiver should have regard for the lifestyle and standing in the community of the debtor. It would, for example, be reasonable to proceed on the basis that the funeral expenses of a person of some standing might be higher than average.
54.30 Assessment of claimed testamentary expenses
Testamentary expenses are the expenses of obtaining probate; this being the exhibiting and proving of the will by the executor in the High Court. The original will is deposited at court and a copy sealed. The court then issues a certificate evidencing that it has been proved. This allows the executor, in the normal course, to administer the will. These functions are often carried out by a solicitor on behalf of the executor.
In assessing a claim for testamentary expenses, the official receiver should ask for a detailed bill of costs, or similar, including time and rate calculations where the stated expenses appear unreasonably high.
The official receiver, as trustee, may by notice in writing claim for the benefit of the estate any property which has been acquired by, or devolved upon, the deceased debtor since his/her death (see Chapter 31.8) [note 45] [note 46]. In practice, these provisions are unlikely to have effect as it is doubtful that a deceased debtor could acquire property.
54.32 Transactions at an undervalue and preferences
The provisions of the Act relating to transactions at an undervalue, transactions defrauding creditors and preferences (see Chapter 31.4A) apply to deceased insolvents [note 47] [note 48] [note 49] [note 50] [note 51]. The relevant date from which to ‘look back’ for actions to recover such transactions would be the date of death, rather than the date of petition [note 52]. So, for example, a transfer to an associate within the period five years before death (rather than petition) might be a transaction at an undervalue if the other criteria were in place (see Chapter 31.4A Part 3).
The provisions in the Act relating to exempt property (see Chapter 30) apply partially in the case of an insolvency administration order [note 53]. In this regard, the official receiver should consider whether clothing, bedding, household equipment, furniture and provisions are necessary for the family of the deceased debtor.
Tools of the trade, etc cannot be treated as exempt property where the debtor is deceased as the provision [note 54] requires that the equipment is used by him/her personally to be considered as exempt.
54.34 Enforcement by creditors against the property of the insolvent
In order for a creditor to retain the proceeds resulting from execution or attachment proceedings, or sums paid to avoid such proceedings, the procedure must have been completed prior to the date of the insolvency administration order [note 55] (see also Chapter 9, Part 2).
54.35 Annulment of an insolvency administration order
The court may annul an insolvency administration order where the order should not have been made or when the debts and costs of the proceedings have been paid in full or secured to the satisfaction of the court. Dispositions of assets by the official receiver, as receiver and manager or trustee are valid. Assets vested in the trustee may be vested in the personal representative (see paragraph 54.55) or, if there is no personal representative, in such person as the court may order [note 56].
Where the annulment is on the grounds of payment in full, any surplus remaining after debts and costs should be returned to the personal representative subject to any parallel EU insolvency proceedings (see paragraphs 41.25 to 41.28). The court may order that the surplus be paid to a person other than the personal representative [note 57].
A deceased insolvent does not receive a discharge from the proceedings. The relevant provisions of the Act in relation to discharge (see Chapter 22) are not applied to deceased insolvents.
54.37 Surplus in the proceedings
If there is a surplus after the debts, costs, expenses and interest of the insolvency administration proceedings have been paid in full, the surplus should be paid to the personal representative, subject to any parallel EU insolvency proceedings (see paragraphs 41.25 to 41.28).
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