Bankruptcy, Will I lose my Superannuation?

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.