The Hong Kong Court has recently ordered the removal of an administratrix, who was the widow of the deceased, after finding she had misappropriated and converted the estate to her own use, repeatedly breached Court orders and had failed to render a proper and accurate account. This case is a reminder to all administrators to fulfil their duties or face removal.
The plaintiff ("P") and the third defendant ("D3") were the sons of the first defendant ("D1") and the deceased. At the time of the deceased's death, P and D3 were minors. Letters of administration were granted in 2000 to D1 and the second defendant, who was the deceased's sister ("D2"). P and D3 came of age in 2003 and 2007 respectively.
The deceased died intestate in 1992, leaving P, D1 and D3 as the only beneficiaries of the estate. At the time of the deceased's death, the net principal value of the estate was approximately HK$13.46 million, consisting of a number of properties in Hong Kong as well as cash/receivables.
In 2010, P became concerned about whether D1 had been properly administering the estate and repeatedly made enquiries of D1 as to the estate's status. P made a formal demand for an account and distribution of the estate in 2014.
In 2015, two properties belonging to the estate were sold. Part of the sale proceeds were paid into D3's personal account and used to purchase a residence for D1, D3 and D3's grandmother as well as to renovate the purchased property. D1 also used a portion of the sale proceeds to pay off a personal loan made to her by her brother.
Later in 2015, on application by P, an order was made requiring D1 to pay P a lump sum representing one-quarter of the sale proceeds of the properties (corresponding to his one-quarter interest in the estate) and a monthly sum equivalent to one-quarter of the rental income derived from two other properties belonging to the estate. After successfully applying the extent the time required to pay the sums, D1 paid a portion of the amount due to P. However, there was still a balance outstanding which D1 had failed to pay to P by the date of the substantive hearing.
In 2015 a further order was made on application by P for the administratixes to render a proper account of the estate. D1 produced an inventory and account to P. P objected to the account on the basis that, amongst other things, there was no opening or closing balance or detail of any movement of assets, the value of the estate could not be obtained, no documents were provided to support the account and there were many payments in the account which were either unsubstantiated or unwarranted. For example, medical expenses were claimed for D1's parents, who were not beneficiaries of the estate.
P applied for an order removing D1 and D2 as administratixes. P alleged that D1:
had misappropriate and converted the estate to the use of herself and D3;
had repeatedly breached court orders and undertaking relating to the administration and distribution of the estate;
had failed to render a proper and accurate account of the estate;
was under a conflict of interest; and
had been dilatory in distributing the estate.
The Court held that by D1 using, or allowing or permitting the use of, the proceeds of sale of the properties belonging to the estate to pay her personal loan and enable D3 to purchase a new property, D1 had misappropriated or converted funds belonging to the estate to the use of herself and D3.
Further, the Court held that P's complaint that D1 repeatedly breached Court orders and undertaking was justified. As ordered, D1 had not fully paid sums owed to P. D1 alleged this was in part because the rental on a property had been decreased so a partial refund of the rental had to be made to the tenant. The Court rejected this justification, noting that D1 should not unilaterally reduce the rent without the sanction of the Court.
The Court held that D1 had failed to render a proper and sufficient account as required by Court order. In doing so, the Court noted that, as according to case law, a proper account is usually required to show the opening and closing balance, give details of movement of the assets, incomes and expenditure, give details of the whereabouts of all properties of the estate and support the account with document any evidence. D1 had not done this.
On the basis of the above, the Court declined to determine whether D1 was under a conflict or been dilatory in distributing the estate.
The Court considered that the removal of D1 was necessary for the due and proper administration of the estate. The Court further considered that there was a clear case for the removal of D2, who had not taken any active step in the administration, as evidenced by her not making any appearance in the present application. The Court ordered the administratixes to be replaced by a practicing solicitor proposed by P.
In deciding that D1 should be removed as administratrix, the Court noted that it was not necessary to establish any specific wrongdoing, misconduct or fault on the part of the administrator. Rather the key question was whether the removal is necessary for the due and proper administration of the estate and whether it is in the interests of the beneficiaries for the administrator to be removed.
Whilst the facts of the case made it an "obvious case" for D1's removal, there will be situations where the circumstances are less clear cut. For example, in making its decision the Court emphasized the importance of the duty of an administrator to render a full and proper account when called to do so, the failure of which could be a reason in of itself to justify removal of an administrator. To safeguard against an application for removal, it is important for administrators to be aware of their duties and, if in doubt, seek legal advice as to those duties.