IP Briefing: Decision of Sheriff Reid in the case of Gordon Chalmers (as Trustee in Sequestration of the late Colin Machin) v Maria Jennifer Machin

The Factual Background / Arguments

In May 2009, the Defender, Maria Machin (MM) and her late husband, Colin Machin (CM) purchased a flat, the title to which was taken in joint names “equally between them and to the survivor of them”. CM died on 25 June 2014 and title automatically passed to MM by virtue of the special destination. MM, as CM’s executor, was unable to wind up CM’s estate because it is alleged that he was insolvent at the date of his death. Over two years after the date of death, MM applied for sequestration of CM’s estate and the Pursuer was appointed as trustee of the deceased’s sequestrated estate. The trustee has now raised proceedings against MM for the sum of £26,998 being the alleged value, as at the date of CC’s death, of his one half share of the flat. This was said to be less than the total debt owed by CC which amounted to almost £50,000. MM defended the action on the basis that CM’s share of the property vested automatically in her when he died by virtue of the survivorship destination and as such, it did not form part of CM’s estate as at the date of death (or in the two years that followed prior to the trustee being appointed). MM also denied that the she had any personal liability for her late husband’s debts (and disputed the extent of them).

The Decision

The Sheriff found that MM was personally liable to the trustee for CM’s debts to the extent of the value of his share in the property, which passed to her on CM’s death. The Sheriff held that MM (in her capacity as an ‘heir of provision’) incurred a passive liability for the debts which were in existence as at the date of CM’s death, to the extent of the value of the succession. The fact that CM was not sequestrated as at the date of death (as was the case in the similar case of Flemings Trustee) did not prevent MM from incurring liability for the debts. The Sheriff held that the personal liability was incurred by MM simply by virtue of her succession under the special destination and noted that the only real effect of the supervening sequestration was to “superimpose upon those unsatisfied creditors a statutory process for the enforcement and collection of their debts for the benefit of the body of creditors as a whole.”

The Sheriff then fixed a proof to allow evidence to be led on the extent of the deceased’s debts as at the date (on the basis that MM cannot be liable for debts which were not in existence when CM died). The Sheriff also made some comments regarding prescription (and whether any of the debts could actually have been extinguished by the passage of time). No final view was expressed as no full submissions were made in relation to this point, however some useful obiter comments were made. The Sheriff’s preliminary thoughts were that the defender’s personal liability would subsist only to the extent that the deceased’s estate was liable to the creditors. Essentially this meant that if the debt due by CM would have been extinguished by prescription, then any liability which MM would have would also cease.

Advice for Insolvency Practitioners

This case is useful for Insolvency Practitioners as it is supportive of their ability to recover funds from spouses of deceased debtors where they have inherited a late spouse’s one half share in a property. This case confirms that the deceased need not be sequestrated at the date of death but where a trustee is subsequently appointed to manage a deceased’s estate, they can actually look back to see what has happened to any heritable property which belonged to the deceased. It is of course important not to wait too long as there is always the risk of a debt prescribing.

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb [AT] bbmsolicitors [DOT] co [DOT] uk) or Sheana Campbell (smc@bbmsolicitors.co.uk). This briefing note is current as at 1 June 2017 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).

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