In the situation where an individual dies and is insolvent, or their deceased estate subsequently becomes insolvent, 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 the estate on the application of:
- A person who is administering a deceased 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 residency 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.
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 will not include the following:
- Certain household property;
- Personal property that has a sentimental value;
- Policies of life insurance; and
- An interest held by the deceased in a regulated superannuation fund.
Priority of Testamentary Expenses
Testamentary expenses are the expenses incurred in administering the deceased estate prior to bankruptcy including the costs of obtaining a grant of probate of a will. A grant of probate is the order which allows an individual (such as the LPR) to deal with the assets of the deceased.
Where an order is made for the administration of a deceased estate, any testamentary expenses incurred are afforded a priority under section 109(d) of the Act. The testamentary expenses rank after the costs of the party who obtained the Order for a bankruptcy Trustee to administer the estate and after the costs and expenses of administering the estate, including the remuneration of the bankruptcy Trustee.
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 of the Act will not apply:
- Sections 139J to 139ZIT of the Act, which relates to the liability of a bankrupt to make 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.
Advice and Assistance
If you wish to discuss this article on bankrupt deceased estates, or your circumstances, please don’t hesitate to contact Pearce & Heers Brisbane or Gold Coast office and our experienced staff will be able to assist you.