Bankruptcy in Australia can be convoluted
and difficult to understand. A question we normally get asked here over at
Bankruptcy Experts Tamworth is 'what happens to my super if I declare
Bankruptcy'? The reply for most is simple, if your super is actually in a regulated
fund or industry fund like Sunsuper or Host Plus then nothing at all 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, consider the
evolving number of members of Self-Managed Super Funds ("SMSFs") in
the last few 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 Tamworth is not
indicating this article is the entire story, if you have any questions feel
free to get in touch with us on 1300 795 575. Whether or not you call us or
another person it does not matter, just please don't walk into bankruptcy blind
when it comes to your SMSF indeed we advise you ask for both legal and
financial advice before proceeding with any of the actions suggested 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
taking on bankruptcy, you will be categorized 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 the two of these members will need 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 aware of them all-- including 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 damaging to a SMSF and as you can imagine
the process of Bankruptcy for a SMSF is rather convoluted.
How much time do I have to restructure my
SMSF Fund after I'm bankrupt?
So what comes to pass 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 want to consider your overall structure
and make sure it is meeting the basic conditions, involving having a new
trustee that is not dealing with issues with Bankruptcy. The Australian Tax
office will supply 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
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 have 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 not sure call Bankruptcy Experts Tamworth 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 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 need to decide if
they wish to remain as a single member SMSF, or if they want to roll all of it
into a managed fund. If both members are entering bankruptcy, then they would
need to sell all assets immediately and transfer the liquid assets to the
managed fund.
From this you can notice how when it comes
to Bankruptcy, even if one single member is running into issues, it can affect
the very existence of an SMSF. If you are at this point facing this issue
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 proposed earlier, a straightforward
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 headaches outlined
above. Bankruptcy is never easy, but finding proper advice is the best initial
step. If you want to discuss your possibilities further, give us a call at
Bankruptcy Experts Tamworth or visit our website:
www.bankruptcyexpertsTamworth.com.au or just give us a call on 1300 795 575.
