One of the laws governing estate administration is that, while a person chosen as executor under a will may refuse to accept the job, once an executor ‘intermeddles’ in the estate, he or she cannot, in theory, ‘resign’ from the role.
It is relatively simple to mistakenly perform an act that reflects one’s acceptance of the role of executor. This generally presents few issues, but when the estate being administered is bankrupt, things can become very problematic.
When the deceased’s liabilities exceed the available assets, the personal representatives of the insolvent estate have a duty to administer it in the best interests of the creditors, not the beneficiaries. Debts must be settled before legacies are paid. If this provision is broken, the executors may be forced to repay the value of any legacies paid from the estate. Payments made to the executor by an insolvent estate may also have to be reimbursed, with interest.
One possible approach is for the executor to seek an Insolvency Administration Order (IAO), which transfers estate administration to a certified insolvency practitioner.
The practical result of an IAO is that the estate is administered in a manner substantially similar to that of a bankruptcy. Any legal processes against the estate are stayed, and the personal representatives are protected from personal claims. The IAO is deemed to begin on the day of death, and a statement of affairs must be drafted, as well as a creditors’ meeting held.
The deceased’s assets are collected and divided in accordance with the insolvency law priorities. The estate’s beneficiaries come last in terms of payment rights.
