How the Bankruptcy Act can help you deal with a deceased’s estate when they are insolvent

Dealing with a deceased person’s estate is never an easy thing. But when the deceased is also insolvent it can make the situation particularly difficult. Fortunately, the Bankruptcy Act 1966 (“the Act”) caters for the administration of insolvent deceased estates.

Under Part XI of the Act the administrator of a deceased estate, or a creditor of the estate, can apply for an order for the administration of the insolvent estate. The order must be made in either the Federal Circuit Court or the Federal Court.

The estate may have been insolvent before the persons’ death, or become insolvent due to expenses incurred by the estate’s administrator. If the deceased was bankrupt at the time of death, the administration of the bankrupt estate continues as if they were still alive.

Types of Petitions

Before a petition can be presented to the Court, the debtor must satisfy one of these residential requirements at the time of death:

  • the debtor was personally present or ordinarily resident in Australia
  • the debtor had a dwelling-house or place of business in Australia
  • the debtor was carrying on business in Australia, either personally or by means of an agent or manager
  • the debtor was a member of a firm or partnership carrying on business in Australia by means of a partner or partners, or of an agent or manager.

A petition can be presented to the Court in one of two ways:

1. Administrator’s Petition

The Administrator of a deceased estate can present a petition to the Court if the estate is insolvent and the provisions of the deceased’s will (if any) could not give effect to.

The Court application must include a Petition under s247 of the Act (“Form 15”), and be accompanied by a Statement of Affairs (“Form 4”).

If the Administrator wants a registered trustee to administer the estate, a Trustee Consent to Act form must be lodged with the Australian Financial Security Authority (AFSA).

2. Creditor’s Petition

A creditor (or group of creditors) owed $5,000 or more can present a Creditor’s Petition under s244 of the Act (“Form 14”).

If the order is made to administer the estate, the legal personal representative of the deceased estate must file a Form 4 (noted above) within 28 days of being advised of the order. Failure to lodge a statement of affairs is a penalty under the Act.

If the creditor presenting the petition has obtained consent from the registered trustee, a copy of the consent to act must be served on the legal representative and lodged with AFSA.

Administering an Insolvent Deceased Estate

Administering an estate may involve:

  • selling certain assets
  • taking fees associated with the Trustee’s remuneration
  • paying dividends
  • reporting to creditors.

Insolvent deceased estates can be administered under either Part XI of the Act or under State and Territory laws. The key difference between the two is that the Act allows the Trustee to recover monies in respect to antecedent transactions, so if monies are recovered the creditors receive a larger return.

Dealing with an insolvent estate under such difficult circumstances is never easy. But with the good information and good planning it can be made a little easier.