John Lambe navigates the tricky landscape of insolvent estates, setting out some common mistakes and explaining how to deal with them.
Insolvent estates are far from rare. Current data suggests that around one in 20 estates in England and Wales fall into insolvency, and that proportion is rising. Yet despite this, many practitioners still treat them as an awkward variation of a standard administration. They are not.
Insolvent estates operate as a different discipline entirely, one where a single misstep can leave the personal representative personally exposed.
The mindset problem
Most estate administrations are driven by the expectations and interests of beneficiaries. That instinct, although usually appropriate, creates real problems when insolvency enters the picture. At that point, the personal representative’s duty shifts entirely: creditors come first. Not partially, not alongside beneficiaries – completely.
Missing this shift is where mistakes start. Practitioners default to familiar habits: paying whichever creditor is shouting the loudest, making informal decisions to ‘move things along’, or issuing early distributions ‘on account’ to keep beneficiaries satisfied. These actions are common, though they are becoming risky in an insolvent or potentially insolvent context. And crucially, they are entirely avoidable with the right discipline and structure.
Where things go wrong: The common mistakes
One of the biggest pitfalls is spotting insolvency too late. Insolvency is not a one‑time checkpoint at the beginning. It is a condition that can develop as claims emerge, valuations shift, or liabilities become clearer. By the time it becomes obvious, damage is often already done. Assets may have been distributed, the wrong creditors may have been paid, and the statutory order of priority may have been breached.
At that point, the problem ceases to be legal. It becomes financial; specifically, who is going to make up the shortfall?
Another recurring issue is failing to follow the statutory order of priority. This isn’t because the law is complex; it’s because it often conflicts with instinct. Practitioners want to pay urgent bills. They want to resolve the creditor who is easy to deal with. They want to make interim payments where beneficiaries are pressing. But in an insolvent estate there is no discretion, no flexibility, and no room for fairness in the everyday sense. The order is fixed, and breaches tend to look strikingly similar: paying accessible creditors first, clearing urgent debts out of sequence, or making early distributions.
Each of these can create personal liability for the personal representative.
A further trap is the false economy of trying to keep control of the administration. Many insolvent estates can be handled by personal representatives without involving an insolvency practitioner, but only where they are simple. The moment complexity enters the picture – uncertain liabilities, disputed claims, litigation risk – the personal representative is exposed in ways they may not fully appreciate. Unlike insolvency practitioners, they do not have the statutory tools or procedural protections that are essential in those situations.
This is why an Insolvency Administration Order is not escalation. More often, it is prudent risk management.
The grey zone: where most problems arise
The most difficult estates are rarely the ones that are obviously insolvent. They are the ones that might be, depending on the outcome of litigation, the validity of a claim, or the realisable value of assets. This grey zone is where practitioners stumble, because the temptation is always to assume the best-case outcome and continue as normal.
But in the grey zone, the personal representative is not simply administering an estate, they are managing competing risks. And if things go wrong, the court’s question is not “Did you get it right?” but “Did you approach the decision properly?” If the decision‑making process cannot be evidenced, the personal representative is exposed.
What people miss…
If a beneficiary is bankrupt, don’t pay them. Their entitlement belongs to their trustee in bankruptcy, and that remains the case even after discharge. A basic search would prevent one of the most avoidable, and surprisingly common errors.
Insolvent estates aren’t just more complex. They’re more dangerous. They require a different mindset, strict adherence to the rules, and a disciplined approach to risk management. Ultimately, in these cases, it’s not the estate that absorbs the mistake. It’s the personal representative.
About the author
John Lambe qualified as a solicitor in 2000 after originally teaching law at A-level and degree level. He joined Forbes Solicitors in 2020 and now co-leads the firm’s Contentious Trusts and Probate team alongside Tom Howcroft. With more than 25 years’ litigation experience, including over a decade specialising in contentious trusts and probate, John advises on complex disputes including Inheritance Act claims, proprietary estoppel, validity challenges and estate disputes. He is recognised by The Legal 500 as a Recommended Lawyer and Next Generation Partner.
