One of the issues that cause many people concern in any personal bankruptcy, either through their own petition or on the petition of another party, is what happens to the assets in my industry Superannuation Fund or my Self-Managed Superannuation Fund (SMSF).
Bankruptcy can be a very stressful event not only for the individual but their family and often business associates.
Superannuation assets are usually protected by the Bankruptcy Act 1966 (Cth) (Act).
Section 116 of the Act provides that a “regulated superannuation fund” and an “approved deposit fund” are not divisible amongst creditors.
Regulated superannuation funds and approved deposit funds are defined in the Superannuation Industry (Supervision) Act 1993 (SIS Act).
In simple terms they are industry funds and SMSF’s.
Whilst this is how they are generally dealt with they are subject to Section 128B and 128C of the Act, which operates in the same way as Section 121 which relates to transfers made for the specific purpose of defeating creditors.
Section 128B specifically relates to a superannuation contribution which is made to defeat a creditor.
A trustee in bankruptcy to void such a transaction must show:
- A transaction was entered into
- The other party to the transaction is identified
- It occurred within a specific period, or while the debtor was insolvent
- It was undervalued, or the purpose was to improperly remove asset from a bankrupt estate
- It did not involve protected property
Transfers to superannuation funds made by third parties on the debtor’s behalf may also be caught under these provisions if the intention of the transfer is to defeat creditors.
Under section 128C, transfers made by third parties are void if:
- They are made to an eligible superannuation fund of the bankrupt
- The property would have formed part of the property available to creditors in a bankrupt estate if the transfer had not been made
- The main purpose of the transaction was to prevent the trustee being able to make the asset available to creditors
The Australian Taxation Office (ATO) can recover from a third party superannuation funds being held by issuing a garnishee notice, but only when the benefits are payable such as when the person retires or passes away.
The SIS Act requires that all members of an SMSF must be trustees of fund, or if the trustee is a company, directors of the corporate trustee.
If a trustee or director of an SMSF is bankrupt, they are automatically disqualified from acting in that role.
It is important to note that if this occurs that within 6 months the SMSF must:
- Roll over the disqualified member’s interest to another complying fund
- Appoint a licensed small fund trustee
- Wind up the fund
A failure to do this will make the fund non-compliant and cause significant tax issues.
How can FC Lawyers help?
At FC Lawyers we understand that superannuation is often one of the most valuable assets a person has.
Our business and corporate team has extensive experience assisting people with the superannuation and bankruptcy issues.
Contact our team to discuss any of the above or any other legal needs.
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