Creditor Pursuing Insolvent Estate of Deceased Father

wharfviewfine

Hello there,

To give a bit of background my father passed away in December 2022. He was a sole trader working as an electrician who also built machinery for use in the bedding industry. My father died with around £1,000 of liquid capital, two old vehicles, a trailer, and nominal items of machinery/tools which he had in a local industrial unit.

It was discovered on his death that he had another partner who ended up arranging his funeral and retaining the two vehicles in question - my mother didn’t want to get involved at the time and instead just arranged the rest of his ‘estate’ as the executor. 

My father died with two main known creditors, his bank and commercial landlord. I understand this may be the wrong order in terms of the hierarchy of settlement but my mother settled my father’s business account debt using what capital he had left along with writing off the nominal value of the machinery/tools in his industrial unit to cover the debt in rent which was owed to his commercial landlord - leaving essentially nothing in the estate except the aforementioned trailer and a computer panel (the relevance of which comes now).

Two months following the above, my mother received correspondence from another creditor/their solicitors claiming that they had payed my father £30,000 to build a machine which was work in progress upon his death. Having looked at his businesses accounts it is clear that he received at least £15,000 of the above amount.

On my fathers death he was essentially separated from my mother however they were still married and listed as ‘joint tenants’ on the family home, despite having little to no involvement and my mother having settled the mortgage with the inheritance from her parents’ recent deaths. Following my father’s death, the property automatically became the sole property of my mother.

The creditor in question is now pursuing my mother for the balance of £30,000 - of which a machine hasn’t been delivered against - plus legal costs. The only aspect of this machine that is material is a computer panel which was purchased to begin the work (probably around £6,000 asset value).

My mother has instructed a solicitor however doesn’t have a great deal of money to cover costs herself, and is getting taken a little for a ride with no real progress in the last four months. The creditor has so far proven £15,000 of BACS transfers of the debt and sent very unconvincing paper receipts for the remaining £15,000 which have apparently been signed by my father, even though his signature was nothing like that supplied.

In summary I’m mostly wondering how much the creditor, if they can satisfactorily prove the debt, is capable of pursuing from my mother - I fully understand things haven’t been done in the right order, or even correctly. Would this be the full £30,000 and involve her remortgaging her home on the understanding the property was owned as Joint Tenants before my father’s passing? Any other advice about how to perhaps come to a settlement or similar would also be appreciated.

Many thanks!

Devongardener

Was your father’s business a limited company?   When you say he had another partner do you mean a business partner or someone he was in a romantic relationship with?   If it was a business partner, they should have been responsible for finalising the company accounts and should have been aware of work in progress receipts.

wharfviewfine

Devongardener said:

Was your father’s business a limited company?   When you say he had another partner do you mean a business partner or someone he was in a romantic relationship with?   If it was a business partner, they should have been responsible for finalising the company accounts and should have been aware of work in progress receipts.

It wasn’t a limited company unfortunately. And romantic, he had no business partners or similar.

Devongardener

It’s a difficult one, I think maybe you need to see if there is a contract or purchase order for the equipment from the customer and see the terms and if your father supplied an order acknowledgment.   It’s quite common to ask for funds in advance to purchase materials and it seems your father did that.  

I think you need an accountant’s advice to properly establish the final business accounts.  Did the payments go into a business account or his personal account?

Marcon

wharfviewfine said:

Hello there,

To give a bit of background my father passed away in December 2022. He was a sole trader working as an electrician who also built machinery for use in the bedding industry. My father died with around £1,000 of liquid capital, two old vehicles, a trailer, and nominal items of machinery/tools which he had in a local industrial unit.

It was discovered on his death that he had another romantic partner who ended up arranging his funeral and retaining the two vehicles in question - my mother didn’t want to get involved at the time and instead just arranged the rest of his ‘estate’ as the executor. 

My father died with two main known creditors, his bank and commercial landlord. I understand this may be the wrong order in terms of the hierarchy of settlement but my mother settled my father’s business account debt using what capital he had left along with writing off the nominal value of the machinery/tools in his industrial unit to cover the debt in rent which was owed to his commercial landlord - leaving essentially nothing in the estate except the aforementioned trailer and a computer panel (the relevance of which comes now).

Two months following the above, my mother received correspondence from another creditor/their solicitors claiming that they had payed my father £30,000 to build a machine which was work in progress upon his death. Having looked at his businesses accounts it is clear that he received at least £15,000 of the above amount.

On my fathers death he was essentially separated from my mother however they were still married and listed as ‘joint tenants’ on the family home, despite having little to no involvement and my mother having settled the mortgage with the inheritance from her parents’ recent deaths. Following my father’s death, the property automatically became the sole property of my mother.

The creditor in question is now pursuing my mother for the balance of £30,000 - of which a machine hasn’t been delivered against - plus legal costs. The only aspect of this machine that is material is a computer panel which was purchased to begin the work (probably around £6,000 asset value).

My mother has instructed a solicitor however isn’t the most forthright, doesn’t have a great deal of money to cover costs herself, and is getting taken a little for a ride with no real progress in the last four months. The creditor has so far proven £15,000 of BACS transfers of the debt and sent very unconvincing paper receipts for the remaining £15,000 which have apparently been signed by my father, even though his signature was nothing like that supplied.

In summary I’m mostly wondering how much the creditor, if they can satisfactorily prove the debt, is capable of pursuing from my mother - I fully understand things haven’t been done in the right order, or even correctly. Would this be the full £30,000 and involve her remortgaging her home on the understanding the property was owned as Joint Tenants before my father’s passing? Any other advice about how to perhaps come to a settlement or similar would also be appreciated.

Many thanks!

If an estate is insolvent, the usual advice is to take no action to administer it - but once you take any action to 'intermeddle' (as the charming bit of jargon goes), you have to complete the job and do so correctly.

The problem is that your mother hasn't done things correctly and that means she could potentially be on the hook personally for failing to do so. It really isn't sensible to try and rely on free advice on a website like this, because a short summary of what you believe to be the salient facts simply isn't sufficient. She really does need fully informed legal advice - and if the current lawyer isn't delivering, lodge a complaint with the firm and go somewhere else. It could be much cheaper than not taking advice as soon as possible. She may be able to 'repossess' the two vehicles appropriated by his romantic partner, which could help, if only a bit?

Hoenir

wharfviewfine said:

My mother has instructed a solicitor however isn’t the most forthright,

What was their opinion?  There's nothing they can do to change historic events. Ball is very much in the creditors court. Have they appointed legal representation or are they pursuing the matter themselves ? 

user1977

After funeral expenses, what were the total amounts of (a) his assets and (b) his debts at the date of death?

I can't see that a creditor can claim any more from the executors than the amount they would have actually got if things had been done "properly" - so certainly not the full amount of the debt if the estate was insolvent. And unless we're talking chunky amounts, I doubt they're going to bother pursuing it.

Devongardener

Another reason to get proper business accounts prepared is to establish whether your father had any income tax liability.   Do you know if HMRC were informed of his death.  Somehow you need to have sight of his bank accounts to see exactly what the customer paid, although I understand that this might be be difficult if your father was living with someone else.   As executor your mother should have gathered all this information.

bobster2

user1977 said:

After funeral expenses, what were the total amounts of (a) his assets and (b) his debts at the date of death?

I can't see that a creditor can claim any more from the executors than the amount they would have actually got if things had been done "properly" - so certainly not the full amount of the debt if the estate was insolvent. And unless we're talking chunky amounts, I doubt they're going to bother pursuing it.

Your forgetting Section 421A of the Insolvency Act 1986 which "permits reclaiming the value of the deceased’s interest in any property which they jointly owned prior to death which passed by survivorship to any surviving co-owners."

https://www.kingsleynapley.co.uk/insights/blogs/dispute-resolution-law-blog/why-the-date-of-death-matters-for-creditors-of-insolvent-estates

If the creditors pursue a 421A order they could force the sale of the jointly owned house to get the full amount of the debt.

wharfviewfine

To summarise answers to the above:

There’s no formal contract or purchase order for the work associated with the £30k debts, and all monies went through a ‘business account’. The debts settled with the bank (using capital) and landlord (using the writing off of assets) came to a total of around £11k I would imagine. Probably around £6k of assets in a commercial trailer and a computer panel still remain in the estate.

Not relying on solely the advice of this forum don’t worry but it’s just helping to clarify things as I haven’t had much direct involvement. I imagine the two vehicles that were in the estate are long gone and the police probably won’t now want to know a year and a bit after the fact. HMRC were informed of his death and all that side of things from a personal tax perspective was alright.

The solicitor instructed is currently pursuing the line of establish the debt with as not being my mothers but my late fathers (this seems a pointless formality to me) and yes they’ve appointed their own solicitors.

The confusion with funeral expenses is that there technically were none as these were all dealt with by my father’s romantic partner, so essentially nil from his estate. Therefore total assets probably £17k and known debts of £11k (which then rose to £41k following this approach - appreciate my mother should have posted a notice in The Gazette).

I’m currently wondering therefore if the creditor is entitled to any more than a third of the total assets my father had on his death? 

As the last commenter has posted however, the company is quoting Section 421A of the Insolvency Act 1986 which "permits reclaiming the value of the deceased’s interest in any property which they jointly owned prior to death which passed by survivorship to any surviving co-owners." As such and reading around this it seems my mother may as well dismiss the solicitor/associated costs and look at partially remortgaging to cover what will eventually be forcibly due anyway?

Many thanks for the advice all. 🙂

bobster2

wharfviewfine said:

As the last commenter has posted however, the company is quoting Section 421A of the Insolvency Act 1986 which "permits reclaiming the value of the deceased’s interest in any property which they jointly owned prior to death which passed by survivorship to any surviving co-owners." As such and reading around this it seems my mother may as well dismiss the solicitor/associated costs and look at partially remortgaging to cover what will eventually be forcibly due anyway?

I wouldn't do that without taking expert advice from a solicitor on the likelihood of the creditor pursuing this course of action and seeing it through. They could well be bluffing!