30 May 2016

Insolvent Deceased Estates


4 min

Why choose a bankruptcy trustee to administer?

Dealing with a friend and/or family’s deceased estate is an emotional time, which can be complicated when you realise there are not enough assets to pay their creditors.

Under these circumstances, an insolvent estate can be handled either under the relevant State and Territory laws or Part XI of the Bankruptcy Act 1966.

In cases with no assets or very few assets to distribute to creditors, administering it under State and Territory laws may be the easiest approach. This would likely involve notifying creditors that no assets are available to pay the deceased’s debts and therefore request creditors to write off their debts. Obviously advice should be obtained from an estate lawyer to confirm that this is the best approach.

However, Part XI of the Bankruptcy Act may be a better option in more complex cases for the following reasons:

  1. An independent expert is appointed to deal with the deceased estate and relieve the executors from dealing with creditor and family pressure.

  2. Creditors might prefer an independent trustee to administer the estate.

  3. Antecedent provisions of the Bankruptcy Act could be available to recover property that might not otherwise be available. These might include undervalued transactions, transfers to defeat creditors, and/or preferential payments.

To administer an insolvent deceased estate, the deceased must satisfy sections 244 and 247 of the Bankruptcy Act (residency requirements):

  • was personally present or ordinarily resident in Australia

  • had a dwelling house or place of business in Australia

  • was carrying on business in Australia, either personally or by means of an agent or manager, or

  • was a member of a firm or partnership carrying on business in Australia by means of a partner or partners, or of an agent or manager.

Assuming the residency requirements are met, the executor or a creditor must apply to the Federal Court to appoint a bankruptcy trustee.

The following information has been taken from the AFSA — Australian Financial Security Authority— website on the process of each application.

Administrator’s petition
The administrator of a deceased person’s estate may present a petition to the court under Part XI of the Bankruptcy Act. The administrator would apply if the deceased estate was insolvent and the provisions of the deceased’s will (if there is one) could not be given effect to.

The administrator’s application to the court must include the Form 15 (available from the Federal Court of Australia) – Petition under section 247 of the Bankruptcy Act with a Form 4 – Statement of Affairs.

If the administrator wants a registered trustee to administer the estate, they must file a Form 12—trustee consent to act declaration with the Official Receiver.

Creditor’s petition
If a creditor or group of creditors is owed at least $5,000, the creditor/s can present a petition to the court using a Form 14 – Creditor's petition under section 244 of the Bankruptcy Act.

A secured creditor must be owed $5,000 after deducting their security's value to present this petition.

If the court makes an order for the administration of the deceased person's estate under Part XI, the deceased estate's legal representative is obligated to file a Form 4 – Statement of affairs within 28 days (notified of the administration order). Failure to do so may subject the legal representative to a penalty under the Act.

If the petition's creditor/s obtained the consent of a registered trustee to administer the estate, a copy of that consent to act along with the petition and the affidavit verifying the petition must be served on the deceased's legal personal representative. The consent to act must also be filed with the Official Receiver.

More information about the court procedures and forms
Enquiries about the court forms and processes can be directed to the courts directly. Their contact details can be found here: Federal Circuit Court

Once a bankruptcy trustee is appointed, the executor’s powers cease and the trustee will take responsibility of the estate. Their basic role is to:

  1. Identify and realise all divisible property.

  2. Recover any undervalued transfers, transfers to defeat creditors, and preferential payments.

  3. Disburse surplus proceeds (if available) under the priority provisions of the Bankruptcy Act (section 109).

  4. Report to creditors and regulators as required.

Should any party feel aggrieved by a trustee’s decision in administering the deceased estate, the Bankruptcy Act's provisions allow those decisions to be challenged.

Depending upon the complexity of the deceased’s affairs having a bankruptcy trustee manage the estate may be the preferred option. Obviously, before making any decision, you should obtain advice.

Worrells is here to help with these matters—so whether you are an executor or estate lawyer, we provide independent advice and act as trustee—if appropriate.

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