Bankruptcy in Australia can be convoluted
and difficult to understand. A question we often get asked here over at
Bankruptcy Experts Sydney is 'what happens to my super if I file for
Bankruptcy'? The answer for most is easy, if your super is normally in a
regulated fund or industry fund like Sunsuper or Host Plus then virtually
nothing happens; your super is 100 % safe when it comes down to Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, look into the
increasing number of members of Self-Managed Super Funds ("SMSFs") in
recent years; 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 Bankruptcy Experts Sydney is not
implying this short article is the whole story, if you have any questions feel
free to get in touch with us on 1300 795 575. No matter if you call us or
somebody else it doesn't matter, just please don't walk into bankruptcy blind
when it comes to your SMSF indeed we suggest you look for both legal and
financial advice before proceeding with any of the actions proposed in this
article.
What is a Disqualified Person?
First and foremost, if you are considering Bankruptcy,
you can not be a part of a SMSF. Why? Because if you are coping with
bankruptcy, you will be grouped as a 'disqualified person'. And a disqualified
person cannot operate as an Individual Trustee. This poses a problem because
usually most of the SMSFs are just 2 people, which means each of these members
will need to also be the individual trustees. The duty of trustee presents a
lot of legal rules, and if you are in this position I would highly encourage
you to get familiar with them all-- for example the fact that you can not 'know
or suspect' that one of you are bankrupt. So you can notice how an individual
bankruptcy can be very harmful to a SMSF and as you can assume the process of Bankruptcy
for a SMSF is rather convoluted.
How much time do I have to restructure my
SMSF Fund once I'm bankrupt?
So what takes place if one of the members
of an SMSF does enter Bankruptcy?
For starters, the SMSF will have to be
restructured. This means that you will want to consider your extensive
structure and ensure it is meeting the basic conditions, including things like
having a new trustee that is not dealing with 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 effective 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 indicates you
need 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 will need to 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 Bankruptcy Experts Sydney for some free advice
on 1300 795 575.
What if I use 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 duty to oversee
the sale and relocation 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 have to decide if
they would like to remain as a single member SMSF, or if they would like to
roll it all into a managed fund. If both members are entering bankruptcy, then
they would definitely need to sell all assets promptly and transfer the liquid
assets to the managed fund.
From that you can see how when it comes to Bankruptcy,
even though one single member is dealing with issues, it can affect the very
existence of an SMSF. If you are currently facing this matter yourself, or with
a partner in a SMSF, please seek financial advice to make certain you are
satisfying the ATO requirements.
A simple solution ...
As I suggested earlier, a straightforward
solution to your SMSF situation is to put your super back into a normal
regulated managed fund prior to bankruptcy and save yourself all the
frustrations outlined above. Bankruptcy is never easy, but receiving proper
advice is the best first step. If you want to discuss your options further,
give us a call at Bankruptcy Experts Sydney or visit our website:
www.bankruptcyexpertsSydney.com.au or just give us a call on 1300 795 575.
