In brief – Executors of a deceased estate must act responsibly, methodically and prudently

A recent devastavit claim related to the collapse of Allco Financial Group is a reminder to executors that when dealing with estate assets, they must exercise the same standard of care as that expected of a trustee.

Duties owed by executors of a deceased estate

The duties owed by the executors of a deceased estate to the beneficiaries of the estate must be considered and adhered to very carefully. If the executors do not discharge their duties, they may face claims that they have committed a "devastavit" on the estate and find themselves liable to compensate the beneficiaries of the estate for any losses suffered as a result of the executors' actions.

Devastavit – the squandering or misapplying of estate assets

Devastavit is a Latin term meaning "he has laid waste". In the trusts and estates law context, it is used to describe the mismanagement of the estate of a deceased person by his or her personal representative, usually the executor, in "squandering and misapplying the assets" contrary to the duty imposed of them.

Devastavit actions are usually brought against executors who have spent estate money extravagantly or misapplied estate assets. An executor who commits waste in this way becomes personally liable to those having claims on the assets of the estate, such as creditors and beneficiaries, and will usually be required to make good their misdeeds out of their own pockets.

Estate of former director of Allco Financial Group

A devastavit claim was recently before the NSW Supreme Court in the case of Griffin & Anor v Coe & Ors [2012] NSWSC 412. The case concerns the estate of the late Phillip Griffin, a former director of Allco Financial Group Ltd. Mr Griffin died by his own hand in late 2007, shortly before Allco collapsed in 2008 under the weight of a $1.1 billion debt.

A claim of devastavit has been made on behalf of Mr Griffin's two minor children, who are beneficiaries of the estate. The plaintiffs are represented in the proceedings by their mother, Mr Griffin's widow, who was recently in the news for her purchase of a $5 million property in Woollahra, Sydney.

Three executors responsible for management of Allco shares

The claim is against Mr Neil Matthews (Mr Griffin’s solicitor), Mr David Coe and Mr Timothy Christiansen, all of whom were appointed executors of Mr Griffin's estate on his death.

The claim relates to the executors' management of 7.38 million shares in Allco, which were held by a company called PMG Holdings Pty Ltd, of which Mr Griffin was sole director, secretary and shareholder. At the time of Mr Griffin's death, the Allco shares were worth around $8.73.

Decline in value of Allco shares leads to huge loss to estate

On Mr Griffin's death, and with the agreement of the executors, control of PMG passed to Mr Christansen, who consulted with Mr Coe and Mr Matthews as to a valuation and potential sale of the Allco shares.

It is alleged that, despite knowing at that time that the Allco share price was rapidly and consistently declining, the executors did not sell any of the Allco shares on behalf of the estate until late September 2008. By that time, each Allco share was valued at just $0.13. The resulting loss to the estate, and its beneficiaries, was allegedly close to $18 million.

Plaintiffs argue that loss to estate amounts to a devastavit

The plaintiffs' argument is that the executors committed a devastavit by not appointing one of them earlier to be a director of PMG in the place of Mr Griffin, by not selling the Allco shares earlier and/or by not exercising their discretion as executors bona fide with due regard to the beneficiaries of the estate.

On 14 September 2012 Davies J considered an interlocutory application by Mr Matthews to strike out the existing statement of claim on the basis that no reasonable cause of action had been demonstrated against Mr Matthews. In relation to Mr Matthews, the plaintiffs had argued, among other things, that he was liable for the devastavit arising from the low price obtained for the Allco shares.

Obligation on executors to act responsibly, methodically and prudently

In considering the case as pleaded against Mr Matthews, Davies J considered the obligations on executors in general. His Honour noted that the standard of care to be exercised by an administrator in effecting a sale of estate property for the purposes of administration may be regarded as the equivalent of that expected of a trustee exercising a power of sale.

The emphasis is on responsible, methodical and prudent behaviour undertaken according to an informed appreciation of the nature of the assets in question.

On the facts before him, Davies J found that Mr Matthews had merely conferred with the executors about the need to value the PMG share and the Allco shares held by PMG, and had not actually taken into his possession, received or dealt with the shares either to the detriment of the estate or at all.

He had not misconducted himself, nor committed a devastavit. This particular aspect of the case was therefore dismissed.

Plaintiffs granted leave to re-plead

Importantly, other allegations of devastavit, and allegations of "wilful default" on the part of Mr Matthews and the other executors were found to be factual matters requiring re-pleading, further evidence and a final hearing before the court could take the matter further.

The plaintiffs were therefore granted leave to re-plead that particular claim and, unlike Allco, certain of the claims against Mr Matthews may very well rise from the ashes as the proceedings against the other executors continue.

Regardless of such developments, the comments of Davies J in Griffin are a helpful reminder to executors as to how they should conduct themselves in the course of administering an estate, large or small.