Bankruptcy and Self-Managed Super Funds (SMSF)
When a person who has a SMSF is bankrupt or subject to a Personal Insolvency Agreement (PIA) they are unable to continue being a director of the Trustee company of the SMSF (Corporations Act 2001, Section 206B(3)) or Trustee of the SMSF (Superannuation Industry (Supervision) Act 1993 Section 120)
This can prove difficult where the SMSF has assets that are not readily realisable to enable the assets to be converted to cash and transferred to an industry super fund.
The good news is that Section 17A of Superannuation Industry (Supervision) Act 1993, gives the bankrupt person 6 months from date of bankruptcy to realise and transfer the assets of the SMSF to an industry super fund.
Where a bankrupt person has a SMSF with assets that are not readily realisable, a potential solution to this problem is for the person to file for bankruptcy and then propose an arrangement with creditors under Part 4 of the Bankruptcy Act which gives creditors a better result than they would receive from bankruptcy. If creditors accept the Part 4 proposal, the bankruptcy is annulled, the person is protected from creditors by the Part 4 scheme and the person is returned to being able to be a director of a company and Trustee of his or her Self-Managed Super Fund.
The negatives of this solution are that creditors must be offered a better result than they would receive from bankruptcy and the person is not released from his or her debts till the terms of the Part 4 Scheme have been complied with. For example, if the scheme requires 36 monthly payments, then once those payments are made the person is released from his or her debts.
We trust this blog has assisted you. This blog is provided as general information only and is not advice. If you have questions pertaining to one of your clients, please give us a call on 1300 060 122 or email firstname.lastname@example.org