When administering an insolvent estate, it’s always best to take professional advice, especially due to the personal financial risks involved. We have the technical knowledge in insolvency and estates laws to be able to support you..
There are various options available, with one of the most common is called an Insolvent Administration Order. This effectively declares the deceased person bankrupt. An Insolvent Administration Order can be used if the deceased wasn’t known to have an insolvent estate until after their death. If any creditors issued a bankruptcy petition against the deceased before they died, the position will be different, and the matter will have to be dealt with under the normal insolvency legislation (the Insolvency Act 1986).
A Personal Representative or one of the creditors of the estate can apply for an Insolvent Administration Order. Once the Court has made the Order, a Trustee will be appointed to control the Estate. The Trustee will then take control of the estate, including any funds held by the Personal Representatives and will collect in any assets still to be dealt with.
The Trustee will then pay the funds from the estate according to the statutory order of priority, which is:
- Secured creditors – such as mortgage loans secured over specific assets
- Funeral expenses
- Testamentary expenses – expenses the Personal Representative incurs as a result of administering the Estate such as HMCTS and Court fees and legal and professional fees
- Preferential creditors
- Secondary preferential creditors
- Unsecured creditors
- Deferred debts – such as loans between family members
Only after the above liabilities have been properly discharged is the Trustee able to then consider distributing any remaining assets under either the will or the rules of intestacy.
It is important to note that only a Trustee (a licensed insolvency practitioner) is able to distribute funds in an insolvent estate without personal liability. If the Personal Representatives do so, it is likely that they will become liable for any payments if they do it wrong or fail to pay people who should have benefitted.