Bankruptcy in Australia can be involved and
difficult to understand. A question we typically get asked here over at
Bankruptcy Experts Mildura is 'what happens to my super if I apply for
Bankruptcy'? The answer for most is simple, if your super is simply in a regulated
fund or industry fund like Sunsuper or Host Plus then virtually nothing
happens; your super is 100 % safe when it comes to Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, look into the
evolving number of members of Self-Managed Super Funds ("SMSFs") over
the last few 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 Mildura is not
proposing this article is the complete story, if you have any questions feel
free to contact us on 1300 795 575. Whether you call us or someone else it does
not matter, just please don't walk into bankruptcy blind when it comes to your
SMSF actually we encourage you seek 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 taking into
account Bankruptcy, you can not be a part of a SMSF. Why? Because if you are
facing bankruptcy, you will be classified as a 'disqualified person'. And a
disqualified individual cannot operate as an Individual Trustee. This poses a
problem since usually most of the SMSFs are just 2 people, which means the two
of these members must 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 end up being aware of 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 destructive to a SMSF and as you can
imagine the process of Bankruptcy for a SMSF is rather convoluted.
How long 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 need to be
reorganized. This means that you will have to consider your overall structure
and ensure that it is meeting the basic conditions, including things like
having a new trustee that is not having issues with Bankruptcy. The Australian
Tax office will supply you a 6 month 'grace period' to get this done before you
face penalties. And keep in mind, sometimes the best 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 suggests you
ought to let them know that you have a bankruptcy issue 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 need to also notify ASIC of
their resignation.
During 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 not exactly sure call Bankruptcy Experts
Mildura 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 be their responsibility
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 take away 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 want
to roll it all into a managed fund. If both members are entering bankruptcy,
then they would definitely need to sell all assets right away and move the
liquid assets to the managed fund.
From this you can notice how when it comes
to Bankruptcy, even though one single member is running into issues, it can
affect the very existence of an SMSF. If you are actually facing this concern
yourself, or with a partner in a SMSF, please seek financial advice to make
sure you are fulfilling the ATO requirements.
A simple solution ...
As I recommended earlier, a basic 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 getting proper advice is the best
initial step. If you want to discuss your options further, give us a call at
Bankruptcy Experts Mildura or visit our website:
www.bankruptcyexpertsMildura.com.au or just give us a call on 1300 795 575.
