Bankruptcy

·

29 Feb 2016

Multiple executor appointments can inhibit the ability to act

READ TIME

3 min

The Law of Unintended Consequences—what if one executor disappears?

Recently I gave some advice on an insolvent deceased estate. The advice itself is not what sparked this article; rather the position in which the estate finds itself shows how the 'law of unintended consequences' can disrupt a reasonable decision made years beforehand.

A few years prior to the gentleman's passing, he decided to appoint two executors under his Will, maybe to spread the burden of handling the estate and give them a second opinion on issues. Maybe it was designed to ensure that the estate was managed properly and efficiently. Naturally, the reasoning is unknown, but he appointed the executors jointly so neither could act individually.

The estate is insolvent. It has no assets after the secured creditors exercised their securities and has about $110,000 in debts.

There is a family trust in the mix with a corporate trustee. That trust holds a small amount of money and the deceased is one of the beneficiaries. There also is a self managed superannuation fund (SMSF) with another corporate trustee that holds superannuation money for the deceased and some of his adult children.

Unfortunately for the estate, one of the two executors went ‘missing in action’, and has been uncontactable for years. The remaining executor cannot perform any acts or make any decisions as he cannot act individually.

The discretionary family trust has a corporate trustee, but the deceased was the only director and shareholder of that company. He was also the principal of the trust. The remaining executor is unable to act using the shareholding to appoint a new director to the trustee company, and cannot act as principal to change the trustee. ASIC has recently deregistered the trustee company for non-lodgement of annual returns. In any event, the money in this trust will likely be paid to the non-bankrupt beneficiaries, not the estate, when a new trustee eventually takes control.

There is a similar position with the SMSF. The deceased was the director and shareholder of the trustee company to the SMSF, so the remaining executor cannot act to control it. As the trustee company has been rudderless for some time, years of returns are required, but no one has control or authority to be able to do them. These returns would determine how much money in the SMSF is attributed to the deceased and how much to the other members. These funds may be paid to the deceased estate, but may not be paid to the trustee of any bankrupt deceased estate as they may be excluded money.

To get control of the deceased estate individually, the executor will have to apply to the court. This application would probably have to precede any application to appoint a bankruptcy trustee to the deceased estate under Part XI of the Bankruptcy Act.

As there is no money in the deceased estate, and little likelihood of money becoming available in the bankrupt estate, the remaining executor is hesitant to make any applications—as those costs would have to be paid from his own pocket.

The idea of having two joint executors may have been perfectly reasonable at the time of signing the Will. But the fact that neither executor can act without the other has led to a position where it appears that at least one application must be made so that control can be taken over the estate, and possibly a second to appoint bankruptcy trustees to it.

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