201509 CM September

LEGAL MATTERS
WHAT TO DO IF
A DEBTOR DIES
EMMA EMERY IS A PARTNER AT FREETHS : emma.emery@freeths.co.uk
In this month’s legal matters, Michael Locke of Begbies Traynor who deal in business
rescue and recovery, discusses the best steps to take if a debtor dies.
THERE are many aspects to consider
on the death of a debtor, but the
overriding issue for most creditors is
that of reputational risk. Serving a
statutory demand at a funeral will generate
millions of pounds worth of bad publicity
that many companies would wish to avoid.
Most estates are solvent and handled by
people who accept the need to pay due
debts.
Once tact allows it, creditors need to
identify the person with locus to handle the
estate. It is essential that the correct person
is notified of the claim to ensure that there
can be no error in distribution. Certain
assets (such as a jointly held property)
might pass outside an estate and not be
available to satisfy creditors without court
action, but such a claim can be interpreted
as a hostile application if not dealt with in a
diplomatic manner.
Once probate is obtained it is common
for the representative of the estate to
be either a family member or former
professional advisor, such that they will
be aware of the deceased’s estate and be
able to administer it correctly, although
creditors should appreciate that many
representatives come to an estate as a
stranger and may welcome information
identifying assets and liabilities to allow
them to do their job correctly.
The estate’s representative should
compile information to allow them to
establish the estate’s position for IHT
purposes, and at this point can often come
to understand that an estate is balance
sheet insolvent. Unfortunately, due to
implications of insolvency law, this can
mean professional advisors’ fees can be
rendered void and repayable in the future,
such that many solicitors and accountants
will no longer be prepared to work for the
estate. Unqualified lay people may flounder
at this point, lacking the skills or experience
to deal with complex assets and litigation.
Dialogue may even identify that the estate
could become completely worthless due to
lack of action.
It is at this point that many
representatives and creditors recognise that
the insolvent estate should have a qualified
Insolvency Practitioner in control of it. The
IP can fulfil all the functions of the personal
representative, without personal liability.
The IP is of course also less personally
involved and can act in a more commercial
manner in dealing with the property of loved
ones.
The appointment of an IP need not
be hostile to the interests of the estate’s
representative and is commonly suggested
as an idea by creditors in order to save
the family the strain of administering an
insolvent estate. The IP’s fees can be paid
from recoveries, thereby avoiding further
family trauma.
The appointment of a Trustee in
Bankruptcy can be of especial benefit to a
secured creditor who may have deficiencies
in their charge, where a property or
business needs to be continued to trade.
An IP furthermore has the powers granted
to him by the Insolvency Act in order
to pursue any antecedent transactions
which have been undertaken to creditors’
detriment, eg gifts or preferential payments
made to family creditors. Also, Section
421A of the Insolvency Act allows for
the overturning of the automatic passing
of property outside the estate under
the survivorship, thereby potentially
substantially increasing the value of the
estate.
Separate to the emotional aspects of
bereavement, the implications of death in
insolvency can be many and various, such
that specialist insolvency advice should be
sought. Can you afford not to?
Michael Locke handled the two leading
cases in deceased insolvent estate law:
Dick V Kendall Freeman and Williams V
Lawrence.
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24 September 2015 www.cicm.com
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