The following Wills & Probate guidance note provides comprehensive and up to date legal information covering:
If an estate is insolvent, the beneficiaries under the Will or the next of kin under the intestacy rules will receive nothing, nor will all the creditors receive full payment. The personal representatives (PRs) must pay creditors in the prescribed order or they may incur personal liability for debts in a higher category that have not been paid. If there is any risk that the estate may prove to be insolvent, observe the prescribed order for payment.
Section 421(4) of the Insolvency Act 1986 (IA 1986) provides a statutory test to establish whether an estate is insolvent: the estate of a deceased person is insolvent if, when realised, it will be insufficient to meet in full all the debts and other liabilities to which it is subject.
An insolvent estate may be administered in one of the following ways:
by the deceased's PRs out of court
by the deceased's PRs under the directions of the court pursuant to an administration order
in bankruptcy, pursuant to an insolvency administration order made by the bankruptcy court
The order in which the expenses and debts of an insolvent estate must be paid is the same whichever method of administration is adopted, and cannot be varied.
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