A Warning For Personal Representatives

Published August 2017

During the last twelve months, in increasing numbers, we have been approached by professional advisers with clients who have been appointed as Personal Representatives (“PRs”) trying to deal with the financial affairs of a family member or friend and who have discovered that the debts left behind by the deceased are greater than the value of the assets available.

It is obviously a very distressing time for those involved but it is also a very dangerous situation if the PR does not handle the situation correctly because if they do not get it right, they could be personally liable to pay the creditors’ of the deceased if they incorrectly give away assets to say other creditors or beneficiaries without ensuring that all creditors are paid in the correct priority.

Assuming that the PR wishes to fulfil their obligations of sorting out the insolvent deceased’s affairs, there are basically four options open to them:

  • Write to creditors and ask if they will consider writing off some or all of the debt,
  • Administer the estate outside of the court under the guidance of a professional.
  • Administer the estate under the direction of the court having obtained the necessary Order,
  • Petition the court for an Insolvent Administration Order,

It is the above second option where we as insolvency practitioners we become involved. 

The rules which allow the affairs of the estate to be managed outside of any formal court process are contained within The Administration of Insolvent Estates of Deceased Persons Order 1986 (“AIEDPO”) which sets out exactly in what order payments to creditors should be made.  The AIEDPO incorporates some of the provisions of the Insolvency Act 1986 and follows the order of priority that applies in bankruptcy.  In addition, it specifically allows for the payment of reasonable funeral, testamentary and administration expenses to be paid ahead of payments to creditors.  In effect the estate must be administered as though in were in bankruptcy which is why, as insolvency practitioners, we are perfectly placed to work with PRs to protect their position and ensure the estate’s affairs are managed correctly.

We have dealt with situations where;

  • a single director/shareholder died suddenly leaving the PRs with a live trading company,
  • it was discovered that the estate was insolvent even before probate had been obtained,
  • only after probate was obtained and assets had been realised was it discovered that there was not enough money to pay all creditors in full.

By applying the skills learnt over many years of dealing with situations where creditors are not going to make a full recovery, we are able to lift the burden of responsibility from the PRs and work with them to ensure the correct procedures are followed and any personal liability avoided.

It is very tempting for a PR to follow the wishes of the deceased and give away personal items of jewellery or other such items before a full understanding of the overall financial position of the estate has been established.  However, this temptation must be resisted until the full financial position is clear, after all, it is better to ask a beneficiary to wait rather than have to ask for the item back!

Accepting the position of acting as a PR is always challenging and full of potential pitfalls, even more so when the estate is insolvent.  Consequently if there is any doubt or concerns as to the solvency of an estate, PRs should immediately seek professional advice to protect their personal position.

As long serving Insolvency Practitioners with practical experience of assisting PRs manage an insolvent estate, Cranfield Business Recovery is very well placed to assist and guide PRs to ensure the maximum value is distributed to creditors with minimum personal exposure. 

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