Administration of Insolvent Estate

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It is a sign of the times that there is an increasing incidence of cases in which people die leaving an insolvent estate.

An estate is insolvent only if the assets within the estate are insufficient to discharge all debts - even if there are insufficient resources to meet any legacies.

In terms of the administration of an insolvent estate there are a number of possible approaches - which include a formal administration in bankruptcy or pursuant to direction by the Court. However, the most usual approach (on grounds of economy) is to extract a grant of representation.

The personal representative (PR) may be the individual named on any Will or a creditor. It is not necessary for the PR to be a qualified Insolvency Practitioner.

In administering the estate care is needed to discharge debts in compliance with the requirements of the Insolvency Act 1986 which requires payment in descending order of priority:

  • Bankruptcy expenses
  • Funeral and administration expenses
  • Preferential debts (for example VAT, student loans etc)
  • Ordinary debts
  • Deferred debts (e.g. loans from a connected person such as a spouse)

If personal representatives make an error they may face personal liability and accordingly great care is required.

 

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