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Insolvent Estates. Application of bankruptcy rules.

If the estate of a deceased person is insolvent, and being administered otherwise than in bankruptcy, then, subject to the payment of reasonable funeral, testamentary and administration expenses, which have priority over the preferential debts, and payment of the statutory preferences, the same provisions as may be in force for the time being under the law of bankruptcy with respect to the assets of individuals adjudged bankrupt apply to the administration of the estate with respect to the respective rights of secured and unsecured creditors, to debts and liabilities provable, to the valuation of future and contingent liabilities, and to the priorities of debts and other payments.Certain specified provisions of the Insolvency Act apply, with modifications, to the insolvent estates of deceased persons dying before presentation of a bankruptcy petition.
If a debtor by or against whom a bankruptcy petition has been presented dies, the proceedings in the matter, unless the court otherwise orders, continue as if he were alive. The reasonable funeral and testamentary expenses have priority over the preferential debts. If a debtor dies after presentation of a bankruptcy petition but before service, the court may order service to be effected on his personal representatives or such other person as it thinks fit.

The rules referred to in the preceding paragraph also prevail where there is sufficient reason to believe that the estate will turn out insolvent, and to an estate which, though sufficient for payment in full of the deceased’s debts and liabilities apart from the costs of administration, becomes insufficient by reason of those costs, and to an estate which, although otherwise solvent, is shown to be insolvent when the capitalised value of an annuity which the testator was under an obligation to pay is taken into account. The court may direct an inquiry whether the estate is insolvent.

A personal representative is not liable to account to a creditor of the same degree as a paid creditor on the insolvency of the estate, provided that either: (1) the debt was paid to a creditor of the estate (including the personal representative himself so long as he has not obtained the grant solely by reason of his being a creditor) in good faith and at a time when he has no reason to believe that the estate is insolvent; or (2) being an administrator who has obtained the grant solely by reason of his being a creditor he has in good faith paid the debt of a creditor other than himself at a time when he has no reason to believe that the estate is insolvent.

Where funds subsequently fall in, but some of the creditors whose proofs have been allowed have disappeared, the court does not divide the entire fund among the creditors who can be traced, but retains a sum to meet the claims of those who have disappeared.

A secured creditor cannot prove for the whole of his debt and rely upon his security for any balance which, owing to the deficiency of assets, might remain unpaid. Under the insolvency rules the secured creditor who wishes to prove against the estate must do one of three things: (1) he may realise his security and prove for the balance; (2) he may surrender his security for the general benefit of creditors, and prove for his whole debt, as if it were unsecured; or (3) he may assess the value of his security and prove for the balance due to him after deducting the assessed value. So long as there are assets remaining undistributed he may, however, with the agreement of the trustee in bankruptcy or the permission of the court alter the value which he has put on his security in his proof, or prove for the first time after one or more dividends have been declared.
A secured creditor who chooses to rest upon his security without adopting any one of the above courses has no debt provable in respect of which any reserve is to be made on a declaration of a dividend. A creditor of two estates for the same debt receives dividends on the whole of his debts from both estates until satisfied.