Self-managed superannuation funds are common but not always administered well.
In the case of Frigger v Trenfield (No 10)  FCA 1500 a bankrupt couple sought declarations that certain assets were held in a regulated superannuation fund and so not available to their creditors based on the operation of the Bankruptcy Act 1966 (Cth) s 116(2)(d)(iii)(A).
Whilst there was variation in the membership of the fund and the trustee(s) of the fund changed from time to time it was identifiably a fund for retirement and always had a trustee. There was controversy, however, at the trial as to the Fund’s compliance with its obligations under the Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”), including to be audited.
The bankrupts, however, were able to put before the Court a letter from APRA stating that for the year of income 1998/1999 the Fund was a complying superannuation fund. There was also before the Court an extract from an ATO Record headed “Super Fund Lookup” which recorded the fund type as an “ATO Regulated Self-Managed Superannuation Fund” and its status as “Complying”.
Jackson J, in making certain of the declarations sought, found that the key matter for determination was whether the trustees of the fund had ever made an election to be a regulated fund. His Honour stated:
"... once a fund becomes a regulated superannuation fund, it will always have that status. An exception to this may be a fundamental change to the fund such as ceasing to have a trustee for a lengthy period of time, or ceasing to be a superannuation fund at all; for example if its governing rules are amended to provide for a principal purpose wholly unconnected with providing income to members on their retirement. But setting that aside, there are textual indications and policy indications evident from the Act as a whole which support the 'once and for all' view. In particular, s 19(1) of the SIS Act speaks in terms of whether subsections (2) to (4) have been complied with. Section 19(4) requires an election to have taken place, and s 19(5) provides that the election is irrevocable.”
Jackson J went on to state:
“…whether or not the [fund] is now a complying superannuation fund (a term defined in the SIS Act, see s 42) does not bear on whether it is a regulated superannuation fund within the meaning of the SIS Act, and so on whether the applicants' interests in the fund are available for division among their creditors.”
The Court’s approach makes it clear that it will be relatively easy for a bankrupt to prove a self-managed superannuation fund is a regulated superannuation fund. All that will be needed are records that establish (or infer) that a fund was established for retirement or superannuation purposes, that the fund had a trustee, and that an election was made pursuant to the SIS Act s 19(4).
Whilst not relevant to the question of whether a fund is regulated, a non-compliant fund can have serious consequences for a bankrupt. These will be discussed in Part 2 of this alert (which will be published soon).
Cowell Clarke’s Insolvency team provides assistance on a range of insolvency and bankruptcy issues, including those relating to self-managed superannuation funds. If you would like assistance in this area please contact us and a member of our team will be in touch.
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