Bankruptcy in Australia can be convoluted
and perplexing. A question we usually get asked here over at Bankruptcy Experts
Maitland is 'what happens to my super if I file for Bankruptcy'? The reply for
most is straightforward, if your super is probably in a regulated fund or
industry fund like Sunsuper or Host Plus then absolutely 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, think about the
expanding number of members of Self-Managed Super Funds ("SMSFs") in
recent years; the ATO tells us it has expanded Australia-wide from 758,589 in
2009 to 1,011,689 in 2014. So what happens to these Superfunds when it involves
Bankruptcy?
Remember Bankruptcy Experts Maitland is not
suggesting this article is the complete story, if you have any questions feel
free to get in touch with us on 1300 795 575. Whether you call us or somebody
else it does not matter, just please don't walk into bankruptcy blind when it
comes to your SMSF actually we recommend you look for both legal and financial
advice before proceeding with any of the actions indicated 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
coping with bankruptcy, you will be grouped as a 'disqualified person'. And a
disqualified individual cannot operate as an Individual Trustee. This poses a
problem due to the fact that usually most of the SMSFs are just 2 people, which
means both of these members have to also be the individual trustees. The job of
trustee causes a lot of legal rules, and if you are in this role I would highly
urge you to get knowledgeable about them all-- for example 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 very harmful to a SMSF and as you can assume the
process of Bankruptcy for a SMSF is rather convoluted.
How long do I have so as to restructure my
SMSF Fund after I'm bankrupt?
So what transpires 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 have to consider your complete structure
and make sure it is meeting the basic conditions, including things like having
a new trustee that is not suffering from issues with Bankruptcy. The Australian
Tax office will give you a 6 month 'grace period' to get this done before you
face penalties. And consider, sometimes the most suitable plan would be to
simply roll the fund into an industry or corporate fund.
Beyond these large scale reorganizing
issues, there is a lot of paperwork to deal with too, and you need to be
continuously keeping the ATO informed of what is happening. This indicates you
ought to let them know that you have a bankruptcy concern 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.
In the course of 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 Maitland 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 have to appoint a new director, and it will then become their duty to
oversee the sale and transfer of assets into a managed fund. If there are two
or more members, than the bankrupt member will need to resign and the other
member will remove the property and halve the proceeds. They would then want to
decide if they wish to remain as a single member SMSF, or if they want to roll
it all into a managed fund. If both members are entering bankruptcy, then they
would definitely need to sell all assets as soon as possible and transfer the
liquid assets to the managed fund.
From this you can see 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 actually facing this trouble yourself, or with
a partner in a SMSF, please seek financial advice to make sure you are
satisfying the ATO requirements.
A simple solution ...
As I recommended earlier, a basic solution
to your SMSF problem is to put your super back into a normal regulated managed
fund prior to bankruptcy and save yourself all the problems outlined above. Bankruptcy
is never easy, but getting proper advice is the best initial step. If you want
to discuss your options further, give us a call at Bankruptcy Experts Maitland
or visit our website: www.bankruptcyexpertsMaitland.com.au or just give us a
call on 1300 795 575.
