Bankruptcy in Australia can be involved and
confusing. A question we commonly get asked here at Liquidation Service is
'what happens to my super if I declare Bankruptcy'? The answer for most is
simple, if your super is usually in a regulated fund or industry fund like
Sunsuper or Host Plus then absolutely nothing happens; your super is 100 % safe
when it involves Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, consider the
expanding number of members of Self-Managed Super Funds ("SMSFs")
lately; the ATO tells us it has increased Australia-wide from 758,589 in 2009
to 1,011,689 in 2014. So what happens to these Superfunds when it comes to Bankruptcy?
Remember Liquidation Service is not
implying this post is the whole story, if you have any questions feel free to
get in touch with us on 1300 795 575. Regardless if you call us or another
person it doesn't matter, just please don't walk into bankruptcy blind when it
comes to your SMSF in fact we highly recommend you look for both legal and
financial advice before proceeding with any of the actions recommended in this
article.
What is a Disqualified Person?
First and foremost, if you are thinking
about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are
going up against bankruptcy, you will be identified as a 'disqualified person'.
And a disqualified individual cannot operate as an Individual Trustee. This
poses a problem because usually most of the SMSFs are just 2 people, which
means both of these members will need to also be the individual trustees. The
job of trustee presents a lot of legal rules, and if you are in this role I
would highly encourage you to get familiar with them all-- including the fact
that you can not 'know or suspect' that one of you are bankrupt. So you can see
how an individual bankruptcy can be quite destructive to a SMSF and as you can
assume the process of Bankruptcy for a SMSF is rather convoluted.
How much time do I have so as to
restructure my SMSF Fund after I'm bankrupt?
So what takes effect if one of the members
of an SMSF does enter Bankruptcy?
For starters, the SMSF will need to be
restructured. This means that you will need to consider your extensive
structure and ensure it is meeting the basic conditions, including having a new
trustee that is not suffering from issues with Bankruptcy. The Australian Tax
office will offer you a 6 month 'grace period' to get this done before you face
penalties. And bear in mind, sometimes the most ideal plan would be to simply
roll the fund into an industry or corporate fund.
Beyond these large scale restructuring
issues, there is a lot of paperwork to deal with too, and you need to be
constantly keeping the ATO informed of what is happening. This means you have
to let them know that you have a bankruptcy problem with your current trustee,
that they are being removed as soon as possible know who the new
trustee/director is. The Bankrupt will also need to inform the ATO using the
form NAT 3036 (Found on the ATO website) and they must also notify ASIC of their
resignation.
Through that 6 month period you will need
to remove the Bankrupt from the SMSF-- including their property and assets.
Remember if you are unsure call Liquidation Service for some free advice on
1300 795 575.
What if I have a single member fund?
If you are a single member fund, then you
will need to appoint a new director, and it will then be their obligation to
oversee the sale and transfer of assets into a managed fund. If there are two
or more members, than the bankrupt member will have to resign and the other
member will remove the property and halve the proceeds. They would then need to
decide if they choose to remain as a single member SMSF, or if they need to
roll all of it into a managed fund. If both members are entering bankruptcy,
then they would definitely need to sell all assets immediately and transfer the
liquid assets to the managed fund.
From that you can notice how when it comes
to Bankruptcy, even though one single member is facing issues, it can affect
the very existence of an SMSF. If you are at the moment facing this issue
yourself, or with a partner in a SMSF, please seek financial advice to make
certain you are fulfilling the ATO requirements.
A simple solution ...
As I suggested earlier, a basic solution to
your SMSF problem is to put your super back into a normal regulated managed
fund before bankruptcy and save yourself all the problems outlined above. Bankruptcy
is never easy, but receiving proper advice is the best 1st step. If you want to
discuss your possibilities further, give us a call at Liquidation Service or
visit our website: www.liquidationservice.com.au or just give us a call on 1300
795 575.
