Insolvent Deceased Estates
Posted on August 02, 2014
In South Australia, there are two ways to deal with an insolvent deceased estate. Either pursuant to the Administration and Probate Act, which is the South Australian legislation that deals with deceased estates, or pursuant to the Bankruptcy Act which is the Commonwealth legislation that deals with bankrupt estates, both living and deceased.
Administration and Probate Act
If the deceased left a will then the deceased’s executor is obliged to pay their debts and distribute the deceased’s surplus assets. If the deceased died without a will then an administrator, generally a family member, has the right to carry out this role.
If, however, the deceased estate is insolvent, the executor or administrator may file a declaration with the Probate Registry.
The effect of this declaration is that the deceased estate must now be administered by the executor or administrator as if it was administered for the benefit of creditors under a decree of the Supreme Court.
It is important to note that the right to file the declaration is not limited to the deceased’s executor or administrator. A creditor of the insolvent estate may also file the declaration with the Probate Registry. However, the executor or administrator of the estate will be the one carrying on the administration of the estate, not the creditor.
Bankruptcy Act
Part 11 of the Bankruptcy Act deals with the administration of insolvent deceased estates. Either the executor, administrator or a creditor of the insolvent estate may apply to the Federal Court for the estate to be administered pursuant to Part 11.
If this occurs the executor or administrator will not act in the administration of the deceased estate as this role will be carried out by a Trustee in Bankruptcy.
Are there any advantages of one Act over the other?
Likely, the creditors of an insolvent deceased estate would prefer for it to be administered pursuant to the Bankruptcy Act by an independent Trustee as opposed to pursuant to the Administration and Probate Act. An executor or administrator may be a relative of the deceased and subject to pressure from other family members. Accordingly, such a person does not offer the independence of the Trustee pursuant to the Bankruptcy Act.
The Commonwealth regime gives priority to the payment of proper funeral and testamentary expenses which is narrower than the priority afforded to an executor or administrator pursuant to the State regime. Of course, the Bankruptcy Act also provides the Trustee with claw back powers if required which could increase the value of the assets in the estate.
There are occasions when it is not desirable to obtain a formal appointment pursuant to the Bankruptcy Act so that creditors and the executor or administrator can work together. Dealing with an insolvent estate pursuant to the Administration and Probate Act may offer more flexible options for creditors and family members.
The administration of complex and insolvent estates can be fraught with legal and commercial risk. Legal advice should be obtained prior to making any decision as to how to proceed. Please contact us if you have any queries or would like further advice on this.