Administration of insolvent deceased estates – What you need to know

When someone passes away, their deceased estate may be insolvent or it may become insolvent during the course of being administered.

But what happens in these circumstances? And, if you’re in charge of the administration of an insolvent deceased estate, what should you do?

Below we cover the main procedures and regulations – and the actions you’ll need to take.

Appointing a bankruptcy trustee to the estate

Part XI of the Bankruptcy Act 1966 (Cth) (“the Act”) allows for the Federal Circuit Court to make an order for the appointment of a bankruptcy trustee to administer an insolvent deceased estate, on the application of:

  • A person who is administering the estate (usually the Legal Personal Representative (“LPR”)) by way of an Administrator’s Petition; or
  • A creditor owed at least $5,000 by the deceased by way of a Creditor’s Petition.

For either of the above types of petitions to be presented, the debtor must meet the following requirements at the date of their 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; or
  • The debtor was a member of a firm or partnership carrying on business in Australia.

It is also a requirement for the filing of an Administrator’s Petition that the deceased estate be insolvent and, whilst not specifically referred to in the Act, the insolvency of the estate will be relevant to the success of a Creditor’s Petition. 

Administrator’s petition by the LPR

An application by way of an Administrator’s Petition is made under section 247 of the Act using the Federal Court Form 15 – Administrator’s Petition.

The application must be accompanied by a Statement of Affairs (AFSA Form 4) and an affidavit from the person administering the estate.

Treatment of property 

When an order is made for the administration of a deceased estate, divisible property of the deceased will vest in and be able to be sold by the bankruptcy trustee appointed.

The divisible property of the deceased generally includes real property, cash at bank, shares and motor vehicles. However, it generally does not include the following:

  • Certain household property;
  • Personal property that has a sentimental value;
  • Policies of life insurance; or
  • An interest held by the deceased in a regulated superannuation fund.

Parts of the Bankruptcy Act 1966 (Cth) that do not apply 

When an order is made under Part XI of the Act, the majority of the Act will apply to the administration of the estate.

However, the following parts will not apply:

  • Sections 139J to 139ZIT of the Act, which relate to the liability of a bankrupt to make income contributions to their bankrupt estate;
  • Section 149, which allows for the automatic discharge of a bankrupt; and
  • Sections 149A to 149Q, which allow for a bankruptcy trustee to object to the automatic discharge of a bankrupt.

Trustee obligations and reporting requirements

All of the relevant sections of the Act that relate to a bankruptcy trustee’s remuneration, costs, accounts and audits, reviews of a bankruptcy trustee’s decisions, reporting to creditors and holding of meetings will apply in the administration of a deceased estate.

Get advice on administration of an insolvent deceased estate

If you are administering an insolvent deceased estate and you would like some advice, please don’t hesitate to get in contact with us for a no-obligation meeting.

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