Barry Gray, 72, had moved to the Rye beach house he built himself after separating from his wife.

A retiree who enjoyed making musical instruments in his spare time, he had told a friend that he'd been having trouble with 22-year-old Woodruff hassling him for cigarettes.

Woodruff had moved to his family's beach house after being released from prison on a Community Corrections Order, which included the condition that he be assessed and treated for mental health issues.

On May 16, 2013 Mr Gray expressed his frustration about Woodruff. The same day Woodruff's father contacted authorities expressing concern that his son wasn't seeking or engaging in treatment.

In the early hours of the following morning, neighbours heard the sounds of two people fighting.

A care worker arrived at 9am and, unable to rouse Mr Gray, called police. His body was found in the living room with multiple stab wounds.

Woodruff had stolen Mr Gray's car and driven it to Port Melbourne, before catching public transport back to Rye. He stole another car and drove it to his grandparents home in Albury.

NSW Police officers arrived initially just to ask him to leave that property but he was arrested after ramming their car and running down the street waving a wooden batten with a knife - the murder weapon - strapped to his chest.

It was never disputed that Woodruff committed the murder but there were questions over his mental capacity at the time of the crime and during later court hearings.

Woodruff suffers treatment resistant schizophrenia, and experiences delusions and hallucinations. He was diagnosed during his first period in custody in early 2013 after exhibiting increasingly bizarre behaviour.

A jury found him unfit to stand trial and he was ordered to spend 25 years receiving treatment and supervision at the Thomas Embling Hospital.

Mr Gray's family sought an inquest before coroner Caitlin English, hoping for answers about how Woodruff was put in a position to offend, and how this situation could be prevented in future.

The inquest heard on Wednesday that information sharing was an issue.

The Community Corrections officer who prepared the pre-sentence report was unaware of his previous psychosis when preparing a report, and had referred him to his GP for the mental health treatment portion of the court order.

Some changes had already been implemented which could have affected Woodruff's case, including the implementation of a review panel to examine complex cases where Community Corrections Orders are sought.

Other considerations were intentionally delayed until the final report of the Royal Commission into Victoria's Mental Health System.

Findings were made public last month.

The inquest is expected to take two days.

Australian Associated Press