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November 2005
Where a petition has been presented after the death of the deceased debtor, an order for the administration in bankruptcy of his/her insolvent estate of a deceased debtor is referred to in the Administration of Insolvent Estates of Deceased Persons Order 1986 (AIEDPO86) as an insolvency administration order [note 1].
54.3 Presentation of petition for an insolvency administration order
Subsequent to a debtor's death, a petition for an insolvency administration order may be presented to the court by either [note 2];
Further information on the EC Regulation on Insolvency Proceedings may be found in Chapter 41.
On of the requirements for making an insolvency administration order is that the debt, or one of the debts, in respect of which the petition is presented is payable as at the date of the petition, or has since become payable, and has not been paid or secured for, or has no reasonable prospect of being able to be paid when it falls due [note 9].
The other essential requirement for a petition for an insolvency administration order is that it is reasonably probable that the estate is insolvent [note 10]. This requirement must be demonstrated to the court to obtain an insolvency administration order. There is no statutory demand requirement [note 11] and the court has no power to refer a case to an insolvency practitioner for a report [note 12].
In addition to a creditor being able to petition in respect of a debt for a liquidated sum equal to or exceeding the bankruptcy limit [note 13], a creditor may petition for a future debt if, due to the death of the deceased debtor, there is no reasonable prospect of payment being made when the debt falls due and there is a reasonable probability that the estate will be insolvent [note 14].
54.6 Personal representative's petition
A petition presented by a deceased person's personal representative (see paragraph 54.12) is similar to a debtor's petition. It may be presented where the personal representative holds the view that the deceased debtor's estate is insolvent [note 15].
54.7 Petition by supervisor of a voluntary arrangement
A petition may be presented by a supervisor of a voluntary arrangement which has been approved prior to the debtor’s death where the continuance of the arrangement is dependent on the receipt of payments from the debtor’s future earnings. The supervisor does not have to demonstrate default with the terms of the voluntary arrangement but merely needs to report to the court that without the debtor’s continuing involvement in the arrangement, it is not feasible for it to continue. Neither a supervisor nor a creditor can petition on the sole ground that the voluntary arrangement proposal contained inaccurate or misleading information, as section 276(1) is not adopted by the AIEDPO86 (see also paragraph 54.33).
An insolvency administration petition shall, unless the court otherwise directs, be served on the personal representative of the deceased and may be served on such other persons as the court may direct [note 16]. This latter provision enables service to be effected where a legal personal representative has not been appointed.
If a liquidator (within the meaning of Article 2(b) of the EC Regulation on Insolvency Proceedings) has been appointed in proceedings by virtue of Article 3(1) of the EC Regulation on Insolvency Proceedings in relation to the deceased debtor, the insolvency administration petition shall also be served on him/her [note 17].
54.9 Power of court to appoint interim receiver
The court may at any time between the date of the presentation of a petition and the making of an insolvency order appoint the official receiver as interim receiver to protect the assets [note 18] (see Chapter 2 - Provisional liquidators and interim receivers.) Care should be taken to observe the terms of the order which may restrict the duties of the official receiver as interim receiver and the assets to be dealt with by him/her. However, in the absence of such restrictions, an interim receiver has all the powers, duties and immunities of a receiver and manager [note 19]. Immediate possession should be taken of the deceased debtor's assets which should be protected pending the hearing of the petition. The personal representative has a duty to co-operate with the interim receiver and provide him/her with details of the assets comprised in the deceased debtor's estate [note 20].
54.10 Administration proceedings in another court
A petition for an insolvency administration order may not be presented where proceedings for the administration of the deceased debtor’s estate have been commenced in another court [note 21]. An example of such proceedings would be a suit instituted in the Chancery Division of the High Court for the administration of the estate. These proceedings may be initiated by the personal representative or any person interested in the estate as creditor, legatee, or next of kin. Such proceedings may be transferred to the bankruptcy court where it appears that the estate is insolvent, thus enabling an insolvency administration order to be made [note 22] [note 23].
On the making of an insolvency administration order, notices similar to those issued on the making of a bankruptcy order should be sent out (see Chapter 4 - Initial procedure when bankruptcy order made). The notices should be headed "In the matter of the Administration of Insolvent Estates of Deceased Persons Order 1986", refer to an insolvency administration order having been made and state that the debtor is deceased. The deceased debtor should not be referred to as "the bankrupt" but as "the deceased debtor".
54.12 Definition of personal representative
The personal representative is either an executor named in the deceased debtor’s will or, where the deceased debtor died intestate, a person (an administrator) to whom letters of administration have been granted by a court of probate. The duties of an executor /administrator are:-
(a) to bury the deceased in a manner suitable to the estate which he/she leaves behind him/her;
(b) to prove the will of the deceased.
See also Part 3.
54.13 Duties of personal representative
Where an insolvency administration order has been made, the personal representative’s duties with regard to the delivery of possession of the estate are similar to those of a bankrupt [note 24]. He/she should notify the official receiver of any assets which may be claimed for the estate by the trustee, provide the official receiver with an inventory of the estate, attend on the official receiver at such times as he/she may reasonably require and provide information regarding the deceased’s assets and affairs [note 25]. If the personal representative does not fulfil his/her obligations, he/she is guilty of a contempt of court and may be punished accordingly [note 26]. The official receiver should also consider whether the personal representative has exceeded his/her duties in the administration of the estate e.g. by disposing of assets inappropriately (see also paragraph 54.20).
54.14 Contact with personal representative
The official receiver should make contact with the personal representative as soon as possible following the making of an insolvency administration order. The making of the order is the commencement of the insolvency proceedings [note 27]. The official receiver is appointed receiver and manager of the estate and the order removes control of the estate from the personal representative [note 28]. It is therefore important that no dealings are carried out by the personal representative subsequent to the order. The personal representative may be a professional person, such as a solicitor or banker, or a relative of the deceased. In the latter case, in carrying out his/her duties, the official receiver should exercise care to avoid adding to the natural distress which the relative may be feeling at the time of the proceedings.
54.15 Statement of affairs requirement
There is a requirement for the personal representative or, where there is no such person, such other person as the court may direct, to lodge a statement of affairs within 56 days of making of the insolvency administration order or such longer period as the official receiver or the court may permit [note 29] [note 30]. Supporting schedules, accounts or a deficiency account may be required by the official receiver in support of the statement of affairs. The statement of affairs should show the position of the estate at both the date of death and the date of insolvency administration order. The official receiver may extend the period for submission of the statement of affairs or release the person required to lodge a statement of affairs from their duty. Where the official receiver refuses to exercise that power, it may be exercised by the court. However, as the statement of affairs should include details of disposals of assets, and a receipts and payments account of the administration of the estate between the date of death and the date of the insolvency administration order date, the requirement to lodge a statement of affairs should generally be enforced.
As soon as possible after the making of the insolvency administration order the official receiver should send the statement of affairs [note 31] to the personal representative with the notice to the personal representative of the deceased debtor letter [note 32] which also includes a supplementary information sheet for completion by the personal representative. The notice to the personal representative also be requires the personal representative to provide the official receiver with a copy of the death certificate and a copy of the last will made by the deceased debtor prior to his/her death. The information contained in the completed statement of affairs and supplementary information sheet should enable the official receiver to make a decision as to whether an interview with the personal representative is necessary. If the personal representative does not return the statement of affairs and supplementary information sheet by the date required in the notice to the personal representative, he/she should be invited to attend upon the official receiver for an interview to provide the information required. (See also paragraphs 54.19 and 54.20).
54.16 Preliminary information questionnaire
It may not be necessary in every case for the official receiver to interview the personal representative or require the completion of a preliminary information questionnaire. Many of the questions asked in the preliminary information questionnaire are asked in the statement of affairs. When the statement of affairs and supplementary information sheet are returned, the official receiver should examine the information provided and make a decision as to whether further information is needed from the personal representative.
Where the official receiver needs further information from the personal representative, an interview may be conducted by telephone or face to face, depending on the complexity of the case and the information required. For example, where the date of death is recent and the deceased debtor was running a business up until the date of his/her death, it is likely that more information will need to be obtained from the personal representative in addition to that contained in the statement of affairs and supplementary information sheet, and a face to face interview is likely to be appropriate in this case. If the official receiver considers the completion of the preliminary information questionnaire is necessary it may be sent to the personal representative for completion in advance of the first interview in the normal way. If this is done the questions must be amended so that they clearly relate to the deceased’s affairs. In view of the guidance in paragraph 54.14 about dealing with a relative of the deceased, it may be appropriate to complete the questionnaire at interview, if the personal representative is a close relative of the deceased and the bereavement was recent. Depending on the complexity of the deceased’s affairs, a narrative statement alone may be sufficient, with the preliminary information questionnaire being used by the examiner as an aide memoire.
54.17 Ability to privately examine personal representative
The official receiver or the trustee may apply to the court for the private examination of the deceased debtor's personal representative (or if there is no personal representative, such person as the court may order), where information is not provided voluntarily [note 33] (see Chapter 23 - Private examinations).
54.18 First meeting of creditors
Where there are sufficient assets to attract the appointment of an insolvency practitioner as trustee, a meeting of creditors should be held. The usual rules of calling and holding such a meeting apply (see Chapter 16 - Meetings) but the proof of debt forms sent out with the meeting notices should bear the date of death as being the date to which claims should be made.
54.19 Payment of funeral and testamentary expenses
In addition to the normal functions of a trustee in bankruptcy (i.e. to get in, realise and distribute the estate), the trustee must have regard to any claim by the personal representative for reasonable funeral, testamentary and administrative expenses incurred by him/her (or if there is no personal representative, a similar claim by any other person) [note 34]. These claims have priority over the preferential debts as listed in Schedule 6 [note 35] and should be detailed on sheet G of the statement of affairs [note 36]. Care should be taken by the official receiver, when trustee, that account is taken of such expenses notified to him/her (whether or not on the statement of affairs) before distributing the estate (See also paragraph 54.24).
In assessing what are reasonable expenses regard should be paid to the lifestyle of the debtor. It would be reasonable to assume that the funeral expenses of a person of some standing in the community would be greater than those of a lesser known person. Testamentary expenses are the expenses of obtaining probate which is the exhibiting and proving of a will by the executor in the High Court. The original will is deposited at court and a copy of it sealed by the court which issues a certificate evidencing that it has been proved. The executor is then, in the normal course of events, able to administer the will.
54.20 Trustee’s title to assets
The trustee’s title to assets dates back to the date of death as if the presentation of the petition, the insolvency administration order and death all occurred on the same day
[note 37]. Only assets which form part of the deceased person’s estate at the time of death vest in the trustee. Disposals of assets are likely to have occurred between the date of death and the making of the insolvency administration order and sheets G and H of the statement of affairs should show an account of such disposals [note 38].
54.21Extent of deceased debtor's estate
An insolvency administration order is made in relation to the "insolvent estate of a deceased person" and the "estate" comprises that property which passes under his/her will or his/her intestacy [note 39]. A deceased’s share in property held on a joint tenancy does not form part of his/her estate which passes under his/her will or intestacy; it passes by survivorship to the surviving joint tenant. Because of the right of survivorship when an Insolvency Administration Order is made, the deceased debtor’s interest in jointly held assets will pass to the surviving partner. The deceased debtor’s interest in jointly held assets (other than those held under a tenancy in common) will not fall within the estate, but see paragraph 54.30 regarding the recovery of the value lost to the estate of a beneficial interest in a joint tenancy.
54.22 Protection for personal representative
Some protection is afforded to the personal representative regarding asset disposals made between the presentation of a petition for an insolvency administration order and the date of the order, by the insertion of section 271(5) [note 40]. This provides that "Nothing in sections 264, 266, 267, 269 or 271-273 shall invalidate any payment made act or thing done in good faith by the personal representative before the date of the insolvency administration order". It is probable that good faith means without notice of the petition (see paragraph 54.8) or without awareness of the insolvency of the deceased.Substantial time may pass between the death of the deceased debtor and the presentation of a petition for an insolvency administration order and section 271(5) provides protection for a personal representative who disposes of property or otherwise deals with the affairs of the deceased debtor in good faith before receiving notice of the petition.
54.23 Duty of the official receiver to investigate deceased’s affairs
The official receiver has no statutory duty to investigate the conduct and affairs of the debtor unless he/she thinks fit but may make such report (if any) to the court as he/she thinks fit [note 41]. In practice, if the official receiver considers that there is prima facie evidence of criminal misconduct by someone other than the deceased, he/she should report it to the Criminal Allegations Team. (See also paragraph 54.27).
54.24 Annulment or surplus in the proceedings
The court may annul an insolvency administration order where the order should not have been made or when the debts and costs of the proceedings have been paid in full or secured to the satisfaction of the court [note 42]. Dispositions of assets by the official receiver, the trustee and the court are valid [note 43]. Assets vested in the trustee may be vested by the court in the personal representative or, if there is no personal representative, in such person as the court may order [note 44]. Where the annulment is on payment in full grounds, any surplus remaining after payment of the debts and the costs of the proceedings should be returned to the personal representative subject to Article 35 of the EC Regulation on Insolvency Proceedings (surplus in secondary proceedings to be transferred to main proceedings.) [note 45]. The court may order that the surplus be paid to a person other than the personal representative, e.g. where the deceased or the personal representative charged the surplus to that person [note 46].
If the insolvency administration order is not annulled and there is a surplus remaining after payment of all creditors in full and with interest and and the payment of the expenses of the administration, the surplus shall be paid to the personal representative unless the court orders otherwise, subject to Article 35 of the EC Regulation on Insolvency Proceedings (surplus in secondary proceedings to be transferred to main proceedings.) [note 47].
Future and contingent liabilities at the date of the deceased debtor's death are valued in the same way as in bankruptcy, at the discretion of the trustee [note 48]. The order of payment of debts and costs remains the same with the exception that reasonable funeral testamentary and administration expenses are a pre-preferential debt [note 49].54.26 Restrictions on dispositions of property
A personal representative is restrained from disposing of any property of the insolvent in the period from the date of the presentation of the petition for an insolvency administration order until the estate vests in a trustee [note 50]. When dealing with third parties it is assumed that the date of the presentation of the petition should be the actual date of the presentation and not the deemed date (i.e. the date of death as provided by the modifications to sections 283-285) [note 51]. This is because section 284(4) states that there will be no remedy against any person -
(a) in respect of any property or payment which he received before the commencement of the bankruptcy in good faith, for value and without notice that the petition has been presented, or
(b) in respect of any interest in respect of which there is, by virtue of this sub-section, no remedy.
Ratification by the court would remove any uncertainty where disposals were made to third parties in good faith and for value between the date of death and the actual date of presentation of the petition. The official receiver should note here that dispositions of property in the relevant period must be 'in good faith and for value' whereas a wider interpretation is given under AIEDPO Sch 1 Part II Paragraph 5 (see paragraph 54.22) which provides that the act or thing must be done 'in good faith'. Any dispositions made by the personal representative in the relevant period are void unless made with consent of the court or subsequently ratified by it. Payments in cash or otherwise are drawn in, being dispositions of the property. Where any such payment is deemed to be void, the money or goods paid should be held by the recipient for the benefit of the deceased’s estate.
proceduresIn order for a creditor to retain the proceeds resulting from execution or attachment proceedings, or sums paid to avoid such proceedings, the procedure must have been completed prior to the actual date of the insolvency administration order not the deemed date [note 51] (see Chapter 9 Part 2 - Action against property of insolvent).
54.28 Criminal offences committed by third parties
Investigations into the deceased’s affairs should be considered where there is prima facie evidence of misconduct involving the actions of third parties. Section 359(2) provides that a person is guilty of an offence if he/she acquires or receives property from the debtor in the period of 12 months prior to the date of death, knowing or believing:-(a) that the deceased debtor owed money in respect of the property; and
(b) that the deceased debtor did not intend, or was unlikely to be able, to pay the money he so owed.
An example of the type of property that might be involved in this offence would be electronic goods acquired by the deceased debtor under a credit agreement.
The trustee of a deceased debtor may by notice in writing claim for the benefit of the estate any property which has been acquired by, or devolved upon the deceased debtor since his/her death [note 37] [note 52].
It is a rather strange concept that property may be acquired by someone subsequent to death but it is possible that the estate may benefit from a contract entered into by the debtor prior to death coming to fruition or that property may devolve upon the debtor, e.g. in a will. Section 307 applies [note 52].
54.30 Property owned under a joint tenancy
The matrimonial/family home is increasingly held by couples jointly and beneficially on trust for sale in equal shares. By virtue of the right of survivorship, a partner’s beneficial share of the property passes to his or her partner at the moment of death. It is only those assets that form part of the deceased debtor’s estate at the time of death which vest in the trustee. As at the time of death the interest in the family home passes to the surviving partner and does not form part of the estate, it does not vest in the trustee and therefore never becomes part of the deceased debtor's estate, despite the fact that the insolvency administration order is deemed to have been made on the day of death.
Section 421A came into force on 02 April 2001 and contains a provision so that the trustee may seek to recover the value of the deceased debtor's interest in the property lost to the estate, which is the amount which, if paid to the trustee, would restore the position to what it would have been if the deceased debtor had been adjudged bankrupt immediately before his/her death. Section 421A applies where an insolvency administration order has been made in respect of the deceased debtor and the petition for that order was presented within the period of five years beginning on the day on which he/she died. On the application of the trustee, the court may make an order requiring the surviving partner to pay to the trustee an amount not exceeding the value lost to the estate [note 53]. The court may only make an order for the payment of an amount of money against the surviving joint tenant(s), and cannot make any order against the property itself, or any other individual who may have subsequently acquired the property from the surviving joint tenant(s). When determining whether to make an order under section 421A the court must have regard to all circumstances of the case, including the interests of the deceased's creditors and of the survivor, but unless the circumstances are exceptional the court must assume that the interests of the deceased debtor's creditors outweigh all other considerations [note 54]. The court may make an order on such terms and conditions as it sees fit [note 55].
Section 421A applies in any situation where a deceased debtor was beneficially entitled to an interest in a property as joint tenant, and not just to a matrimonial or family home.
If a deceased debtor who owned property under a joint tenancy transferred his/her interest in the property to someone else, including a joint tenant before he/she died, and the transaction was at an undervalue, the right of survivorship would not apply, and the trustee could seek an order under section 339 to restore the position to what it would have been if the deceased debtor had not entered into that transaction. See also paragraph 54.32.
54.31 Property owned under a tenancy in common or solely by the deceased debtor
Where the deceased debtor’s sole or principal residence is owned solely by the deceased insolvent or is jointly owned under a tenancy in common the provisions of section 283A may apply. Section 283A was introduced by the Enterprise Act 2002 and provides that the interest in such a dwelling-house will re-vest in the bankrupt 3 years from the date of the bankruptcy order (or 3 years from the date the official receiver or other trustee becomes aware of its existence) without conveyance, assignment or transfer unless the trustee has taken action to dispose or otherwise deal with the bankrupt’s interest in it. AIEDPO86 Schedule 1 Part II paragraph 12 adopts sections 283 to 285 and current legal advice is that this includes section 283A but no provision is contained in the legislation to modify the language of section 283A in order to apply to the estate of a deceased debtor. An amendment to the AIEDPO86 may be made in the future to clarify this position.
In the meantime the official receiver should assume that section 283A does apply and in the case of a deceased debtor with a solely owned property or a tenancy in common in a dwelling house, the interest in the dwelling house would vest in the personal representatives of the deceased (or such person as the court may order) if the trustee took no action within 3 years. The official receiver should therefore take all necessary steps to realise his/her interest in the property within the three year period (starting at the date of death) in order to avoid a later claim that the property ceases to be comprised in the insolvency estate by virtue of section 283A.
For information on the application of s283A generally see Chapter 33 Part 1 - Bankrupt's interest in the family home.
54.32 Transactions at an undervalue and preferences
The provisions in the Insolvency Act 1986 relating to transactions at an undervalue and to preferences apply to deceased insolvents [note 56].In the case of Inland Revenue Commissioners v Hashmi, The Times, November 2, 2001 the Inland Revenue obtained an order against the insolvent estate of a deceased debtor (the taxpayer), that the transfer of assets be set aside. At the time of his death the deceased debtor had outstanding tax liabilities. A transfer of a beneficial interest in business premises from the deceased debtor to his son in consideration of "natural love and affection" was deemed to be a transaction at an undervalue satisfying the statutory purpose laid down in section 423, and the Inland Revenue was entitled to an order against the insolvent estate of the deceased debtor declaring that the transfer be set aside.
An individual voluntary arrangement cannot be approved by creditors after the date of the individual's death. Where an individual who is subject to an interim order under section 252 dies before submitting proposals to creditors, the nominee must give notice to the court that the individual has died and the court will discharge the order [note 57]. Where the individual dies after submitting his/her proposals but before a creditors’ meeting has been held then no such meeting shall be held [note 58].A voluntary arrangement will continue after death, however, where the proposal was approved by a meeting of creditors before the death of the individual and is therefore legally binding. The supervisor of the arrangement should give notice of the death to the court. If personal participation by the deceased debtor was intended, e.g. by the making of payments from future earnings, the court may take the view that the voluntary arrangement should cease. Sections 260 and 262 which deal with the effect of approval and challenges to the decisions made by the meeting of creditors, cease to apply on or after the death of the individual [note 59].
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