During the administration of a solvent estate, the executor or administrator must pay out all valid debts made against the estate. The executor or administrator, however, may take the position that a particular claim of debt made by a creditor is not valid, and may reject it. The creditor may then sue to enforce its claim.
Generally, creditors have six years to bring a lawsuit to enforce a claim for debt arising from a breach of contract. There are certain provisions of the Limitation Act which may extend that time period, up to an ultimate limitation period of 30 years (subject to limited exceptions). In most cases, however, the beneficiaries and the executor would prefer to distribute the estate in less than six years. The Estate Administration Act recognizes this and allows the executor or administrator to provide notice to a creditor that he or she disputes the creditor’s claim against the estate. Once that notice is given, if there is a debt then owing, the creditor has only six months within which to start a lawsuit to enforce its claim. If the debt has not then accrued due, then the creditor would have six months from the time it falls due. If the creditor does not sue within the six month period, the claim will be “forever barred”.
This section of the Estate Administration Act is powerful in that it may abridge the limitation period of the creditor. Our courts have stated that the purpose for this notice provision is “to enable a timely winding-up of an estate without awaiting the expiration of statutory time limits”.
There are some restrictions on whom the executor may deliver this notice to. The Estate Administration Act specifically excludes this type of notice being provided to a beneficiary making a claim in his or her capacity as a beneficiary. Additionally, the Supreme Court of British Columbia in the 2008 decision Battrum v. MacKenzie found that this section does not apply to other types of claims which may be made against an estate, such as claims in tort (such as negligence or negligent misrepresentation). The Court held that the notice provision had no effect on the limitation period relating to tort claims.
While there are some exceptions to this notice provision in the Estate Administration Act, it remains a powerful tool for moving the administration of an estate forward in a timely manner.