Assets

Assets (from the O. Nor. Fr. assetz, mod. Fr. assez, “enough”), in English law, strictly the property of a debtor in the hands of his representative sufficient for the satisfaction of his creditors or legatees. Thus the property of a bankrupt is termed his assets and is the fund out of which his liabilities must be paid. All property of the debtor is assets, and it is not necessary that it should have been reduced into possession by him.

The creditors of a debtor are either secured or unsecured. A secured creditor, e.g. a mortgagee, has a prior claim to be paid his debt out of his security. If on realization of the security there is a balance after paying the debt, such balance becomes assets for the unsecured creditors; if there is a deficit, then the creditor becomes an unsecured creditor for such deficit. The unsecured creditors were formerly divided into creditors by specialty and by simple contract, the first being creditors secured by instrument under seal who ranked in priority to simple contract creditors. But by Hinde Palmer’s Act [the Executors Act] 1869 all unsecured creditors rank alike.

Assets are divisible into legal assets and equitable assets, and the former class is again divisible into assets real and personal. These distinctions, though formerly of great importance, have now lost most of their meaning, but it is necessary briefly to describe the nature of these divisions and their consequences. The distinction between assets legal and equitable depends entirely upon the remedy open to the creditor to recover his debt and in no way upon the nature of the property from which the debt is sought to be recovered. If the creditor had to sue the executor of a debtor at law to obtain payment out of the property, that property was legal assets; but if the only remedy open to the creditor to get at the property was to bring an action in chancery for the administration of the estate, then the assets were equitable.

Legal assets, as has been said, were divided into real and personal assets. The personal assets were those which devolved virtute officii on the executor or administrator; such assets are since Hinde Palmer’s Act available equally for specialty and simple contract creditors. The real assets consisted of those descending to the heir or devised to a devisee, and were at law only liable for specialty debts. However, by the Land Transfer Act 1897 it is provided that the real estate of a deceased shall devolve upon the executor and “shall be administered in the same manner ... and with the same incidents as if it were personal estate.” The distinction, therefore, between assets real and personal has practically ceased to exist, and only continues in regard to such property as is not included in the act, the most important of which is land held in copyhold.

The equitable assets were treated otherwise. In the eyes of equity all unsecured creditors stand upon the same footing, and a creditor suing for administration of the estate sued on behalf of himself and all other creditors of the estate, and the distinction between specialty and simple contract creditors was ignored. Land was not at law liable to satisfy simple contract creditors; but if a testator expressly charged it with payment of his debts or devised it to his executors upon trust to pay his debts, equity treated it as equitable assets and so made it available to satisfy simple contract creditors; and finally by an act of 1833 it was provided that real estate should in all cases be assets to be administered by equity for the benefit of simple contract creditors as well as creditors by specialty. It will be seen therefore that, generally speaking, all creditors have now the same remedies against the executors either at law or in equity. The only property as to which these distinctions at all survive is that not touched by the Land Transfer Act 1897.

The act of 1833 just mentioned does not, however, deal with legacies, which continue to be payable only out of personalty unless they are expressly charged upon the realty by the testator; it has been contended that the effect of the Land Transfer Act 1897 has been to alter this and make the realty assets for the purpose of paying legacies, but this view is believed to be unsound.

It is necessary for the representative so to distribute the assets that any fund primarily liable shall bear its proper burden, and that as far as possible all debts and legacies may be paid; this is said to be “marshalling the assets,” and a few examples of the principal cases of marshalling will make this clear. If the personalty is exhausted in satisfying the creditors the legatees are left without a fund from which to be paid. But inasmuch as the creditor could have got paid out of the realty, as well as the personalty, it is not fair that the legatee should suffer by the creditor’s choice, and he will therefore get payment from the real estate. So again if one legacy is charged upon the real estate and another is not, then if the former be paid out of the personalty the latter will stand in its place and be paid from the real estate.

Finally it shall be noticed that an insolvent estate may be administered in bankruptcy. In such a case the law of bankruptcy regulates the order in which the assets are divided among the creditors (see Bankruptcy), but by the Judicature Act 1875, it is provided that an insolvent estate may be administered in the chancery division, and in such a case “the same rules shall prevail and be observed as to the respective rights of secured and unsecured creditors and as to the debts and liabilities provable and as to the valuation of annuities and future and contingent liabilities respectively as may be in force for the time being under the law of bankruptcy.” This clause must be construed strictly, and it is only in the three cases specifically mentioned that the rules of bankruptcy will be imported into the administration of an insolvent estate by the chancery division.

In a less strict sense, the term “assets,” or “an asset,” is used derivatively as a synonym for any property, or as opposed to “liabilities.” Cecil Rhodes once spoke of the British flag as a “great commercial asset” in South Africa, meaning merely that the imperial connexion was a source of strength and credit.

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