This session deals with deceased estates where the liabilities exceed assets. Insolvent deceased estates require careful handling because the executor cannot simply proceed in the ordinary course of administration. The session explains how the executor identifies insolvency, reports it, communicates with creditors, and determines the appropriate administration route.
The focus is on the practical decision-making process and the risks that arise when an executor continues to administer an insolvent estate as if it were solvent.
Key Topics
Identifying an Insolvent Deceased Estate
Difference between illiquidity and insolvency.
When an estate is unable to meet its liabilities.
The importance of the section 29 creditors’ notice.
Evaluating claims after expiry of the claims period.
Distinguishing disputed, secured, preferent, and concurrent claims.
Executor’s Duties When Insolvency Is Suspected
Duty to investigate solvency.
Duty to report insolvency to the Master.
Risk of premature payments.
Assessing each creditor’s claim.
Executor’s potential personal liability.
Reporting to the Master
When the Master must be notified.
Information to be submitted to the Master.
How creditors must be notified.
When to proceed under the Insolvency Act.
Creditors and Ranking of Claims
Secured creditors.
Preferent creditors.
Concurrent creditors.
Funeral and administration expenses.
SARS as a creditor.
Maintenance claims.
Bondholders and asset finance creditors.
Assets in Insolvent Deceased Estates
Sale of immovable property.
Effect of bonded property.
Vehicles under finance.
Business assets.
Household goods.
Assets claimed by a surviving spouse or third party.
Assets subject to security.
Effect on Heirs and Beneficiaries
Why heirs do not inherit until creditors are settled.
Abatement of benefits.
No distribution where estate is insolvent.
Dealing with family expectations.
Communicating difficult outcomes.
Drafting Considerations
How insolvency affects the Liquidation and Distribution Account.
