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  1. Home
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  5. December 2021
  6. Executor disputes and the insolvency solution

Executor disputes and the insolvency solution

How sequestration proceedings were deployed in one case to bring to an end a dispute between executors that was blocking progress in the administration of an estate
8th December 2021 | Paul McDougall

A recent client enquiry has reiterated the pitfalls in dealing with an executry involving family members with competing interests as executors. It demonstrates that it is often best to appoint an appropriate professional adviser to provide advice in order to avoid family disputes.

In this case, the family members incurred a large debt with the local authority which continued to accrue after the date of death. In the outcome, two of the executors placed the estate into a technically insolvent position, and with the assistance of an insolvency practitioner, used an insolvency process to bring matters to a conclusion.

The names of the individuals have been substituted for privacy. 

Unfinished business

In 1997, Mr Smith passed away intestate. He solely owned his property and was survived by his wife Mrs Smith. Mrs Smith was appointed as sole executor. The estate was relatively straightforward with no notable debts to be settled. 

Mrs Smith, by virtue of her prior rights under ss 8 and 9 of the Succession (Scotland) Act 1964, was entitled to the matrimonial property. At that time, Mrs Smith would have been entitled to the house or its proceeds up to a value of £110,000 if she was “ordinarily resident” in the property at the date of death. 

In the normal course, Mrs Smith would have engaged a solicitor to attend to the conveyancing of the house at that time. However, for reasons that remain unclear, she did not pursue that course of action. 

Following Mrs Smith’s death in July 2012, son A successfully petitioned the court to be decerned executor of his late father’s estate. The family discovered the property was still held in the name of their late father, and sons B and C subsequently petitioned the court to be appointed as additional executors with effect from February 2013.

Mrs Smith did leave a will and bequeathed her estate equally to her children. In the will, Mrs Smith appointed a solicitor as well as son A, daughter D and daughter E to act as joint executors. 

Impasse

Tensions between the executors of both estates remained high throughout, with no prospect of a successful resolution or agreement on what should happen with the property. Given these tensions, the solicitor as well as daughter D resigned from their position as executors. 

In August 2021, the local authority concluded that Mr Smith remained the owner of the property and issued the estate with a liability in the sum of £41,000 for unpaid council tax, the sum accrued since Mrs Smith's death in 2012. The local authority confirmed the sums were due and payable and failure to pay would result in petitioning for the sequestration of Mr Smith’s estate through the court. The council tax was charged and applied in line with the Local Government Finance Act 1992. 

The property had appreciated in value since 1997 and its current value was in the sum of £350,000.  

Sons B and C approached Wylie & Bisset for advice, and it was quickly concluded that Mr Smith’s estate was solvent. Several options were discussed, including applying to court for the removal of son A from both his executorships, appointing a judicial factor, or the siblings applying to the court for payment of their inheritance. Each of these would involve a lengthy and expensive court action. 

Sons B and C wanted a more practical approach and considered whether they could competently petition for the sequestration of their dad’s estate through a debtor application process.

Debtor application

In terms of s 5 of the Bankruptcy (Scotland) Act 2016, the sequestration of a deceased's estate can be achieved by way of a debtor application made by an executor, or a person entitled to be appointed as executor, on the estate. 

In terms of s 8 of the Act, any debtor application must be made to the Accountant in Bankruptcy. A certificate for sequestration was signed in accordance with s 9 of the Act as the estate, albeit that it was solvent, could not pay its debts as they fell due. The test of this was easily met as the estate did not retain funds to settle the amount owed to the local authority, which had become due and payable. The estate did not have to be absolutely (balance sheet) insolvent, and in this case did not require the agreement of all executors to make the application to the Accountant in Bankruptcy to do so – just the majority.

The Accountant in Bankruptcy reviewed the facts of the case and awarded sequestration.

On the award of sequestration, the estate of Mr Smith vested with the trustee in accordance with s 78 of the 2016 Act. 

The property is now being actively marketed and once sold, will settle the outstanding debt to Mr Smith’s estate. Section 129 of the 2016 Act outlines the order of priority of payments within an insolvent estate. Once the costs of administration have been settled, the residual sums held will be ultimately split amongst Mrs Smith’s children. 

While the above case study is unique, it illustrates that sequestration can be used as a practical process in dealing with estates especially where there is a dispute between executors resulting in the estate accruing liabilities. 

The Author

Paul McDougall, associate director, Wylie & Bisset LLP

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