July 26, 2022

What Causes an Administration of a Deceased Estate?

Many people experience financial difficulties throughout their lives, which can be stressful for everyone involved. And, while death is an unfortunate fact of life, it doesn’t void a person’s responsibilities to their creditors. If a person passes away while they are insolvent, their estate may become subject to an administration procedure to ensure their assets are distributed correctly. This not only allows creditors to reclaim money they are owed, it means loved ones aren’t required to shoulder the burden of debts inherited from those who have died.

What is a Deceased Estate?

In Australia, a Deceased Estate encompasses all the property, possessions and liabilities of a person who has passed away. A deceased estate is made up of all your belongings and financial responsibilities, including:

  • Real estate
  • Money in bank accounts
  • Investments such as shares and mutual funds
  • Vehicles, caravans and boats
  • Jewellery, clothes and other personal effects
  • House contents
  • Debts and liabilities such as mortgages and unsecured loans

A deceased estate is responsible for liabilities (to the extent there are sufficient assets to realise), meaning an insolvent estate can still be required to pay creditors following a person’s death. The Bankruptcy Act 1966 contains provisions that enable insolvent deceased estates to be administered in bankruptcy to ensure creditors receive repayment.

What Causes a Part XI Administration of a Deceased Estate?

While people may find themselves insolvent during the course of their lives, creditors remain entitled to reclaim the money they are owed following the death of a debtor. Part XI of the Bankruptcy Act 1966 contains provisions for the administration of estates of deceased persons. These provisions are similar to those for conventional bankruptcy.

There are three scenarios where an estate could become subject to Part XI administration:

  • Where a person is insolvent at the time of their death, and a creditor’s petition has been filed against them, but no sequestration order has yet been made.
  • Where a person passes away and then a creditor brings proceedings to wind up the estate using Part XI provisions.
  • Where a deceased person’s legal personal representative (usually the executor of their Will) elects to wind up the estate using Part XI provisions. 

If a creditor wishes to reclaim the money they are owed through Part XI proceedings, the Federal Court will need to issue the order. Part XI administration can be initiated even when the deceased estate is undergoing bankruptcy. For instance, if the deceased person incurred new debts after their Part IV bankruptcy commenced, creditors with new debts may apply for bankruptcy under Part XI.

If a person passes away while they are subject to Part IV bankruptcy, their bankruptcy proceedings continue normally. Part XI proceedings are reserved for bankruptcy issues commencing after the death of a debtor.

What Happens During the Administration of a Deceased Estate?

The administration of a deceased estate occurs in much the same way as typical bankruptcy proceedings. The Part XI administration process follows the same basic steps as other types of personal insolvency management:

  1. A third party administrator (the Trustee) is appointed
  2. The Trustee identifies the assets and liabilities of the estate
  3. The Trustee realises any assets belonging to the deceased estate that are not excluded under the Bankruptcy Act
  4. Dividends are paid to creditors, and most remaining debts are extinguished

Much like Part IV bankruptcy proceedings, the Trustee administering a Part XI deceased estate will make investigations into the person’s financial affairs, handle creditor claims, report to creditors and pay dividends. The Trustee may also investigate and pursue any voidable transactions that were made prior to the person’s death, potentially increasing the value of the estate for administration.

Looking for Experienced Part XI Administrators? Contact SV Partners Today

The team at SV Partners is equipped to act as administrators for all proceedings under Part XI of the Bankruptcy Act. Our advisors hold vast experience with all aspects of personal insolvency and bankruptcy, allowing us to offer sensitive, expert advice to help deal with deceased estate administration. We understand that administering a deceased estate can be a distressing time for those who are left behind, and we strive to provide the compassionate advice and services needed to navigate the situation. To find out more or to have a confidential discussion, you can contact us online or phone us on 1800 246 801.

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