Bankruptcy in Australia can be complicated
and confusing. A question we usually get asked here over at Bankruptcy Experts
Wollongong is 'what happens to my super if I declare Bankruptcy'? The answer
for most is straightforward, if your super is probably in a regulated fund or
industry fund like Sunsuper or Host Plus then nothing at all happens; your
super is 100 % safe when it involves Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, look into the
developing number of members of Self-Managed Super Funds ("SMSFs")
over the last few years; the ATO tells us it has grown 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 Wollongong is
not suggesting this article is the entire story, if you have any questions feel
free to call 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 in truth we strongly recommend you look 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 thinking
about 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 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 must also be the individual trustees. The duty of trustee
poses a lot of legal rules, and if you are in this position I would highly
recommend you to be familiar with them all-- including 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 quite damaging to a SMSF and as you can imagine
the process of Bankruptcy for a SMSF is rather convoluted.
How long do I have so as to restructure my
SMSF Fund once I'm bankrupt?
So what comes about 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 have to consider your extensive
structure and ensure that it is meeting the basic conditions, including having
a new trustee that is not experiencing 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 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 means you will
need 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 will need to also notify ASIC
of their resignation.
During 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 Wollongong 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 become 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 need to resign
and the other member will clear away the property and halve the proceeds. They
would then have to decide if they wish to remain as a single member SMSF, or if
they want to roll everything into a managed fund. If both members are entering
bankruptcy, then they would definitely need to sell all assets immediately 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 dealing with issues, it can
affect the very existence of an SMSF. If you are right now facing this problem
yourself, or with a partner in a SMSF, please seek financial advice to make
certain you are meeting the ATO requirements.
A simple solution ...
As I proposed earlier, a simple solution to
your SMSF issue is to put your super back into a normal regulated managed fund
before bankruptcy and save yourself all the headaches outlined above. Bankruptcy
is never easy, but receiving proper advice is the best 1st step. If you want to
discuss your options further, call us at Bankruptcy Experts Wollongong or visit
our website: www.bankruptcyexpertsWollongong.com.au or just call us on 1300 795
575.
