Bankruptcy in Australia can be involved and
perplexing. A question we usually get asked here at Bankruptcy Advice Hobart is
'what happens to my super if I apply for Bankruptcy'? The answer for most is
straightforward, if your super is normally in a regulated fund or industry fund
like Sunsuper or Host Plus then absolutely 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, consider the
evolving number of members of Self-Managed Super Funds ("SMSFs") in
recent 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 comes down to
Bankruptcy?
Remember Bankruptcy Advice Hobart is not
suggesting this article is the whole story, if you have any questions feel free
to call us on 13a00 879 867. Whether or not you call us or somebody else it
doesn't matter, just please don't walk into bankruptcy blind when it comes to
your SMSF in fact we advise you get 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 considering 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 since usually
most of the SMSFs are just 2 people, which means each of these members have to
also be the individual trustees. The role 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-- 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 harmful to a SMSF and as you can assume the process of Bankruptcy
for a SMSF is rather convoluted.
How long do I have to restructure my SMSF
Fund after I'm bankrupt?
So what takes place if one of the members
of an SMSF does enter Bankruptcy?
For starters, the SMSF will have to be
reorganized. This means that you will need to consider your overall structure
and make sure it is meeting the basic conditions, including having a new
trustee that is not dealing with issues with Bankruptcy. The Australian Tax
office will offer you a 6 month 'grace period' to get this done before you face
penalties. And keep in mind, sometimes the most ideal 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
frequently keeping the ATO informed of what is happening. This indicates you
will need to let them know that you have a bankruptcy problem 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 exactly sure call Bankruptcy Advice Hobart for some
free advice on 1300 879 867.
What if I have 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 relocation 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
remove the property and halve the proceeds. They would then need to decide if
they choose to remain as a single member SMSF, or if they intend to roll all of
it into a managed fund. If both members are entering bankruptcy, then they
would 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 when one single member is dealing with issues, it can
affect the very existence of an SMSF. If you are at this point 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 recommended earlier, a straightforward
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 headaches
outlined above. Bankruptcy is never easy, but receiving proper advice is the
best initial step. If you want to discuss your possibilities further, give us a
call at Bankruptcy Advice Hobart or visit our website:
www.bankruptcy-advice.com.au/Hobart.com.au or just call us on 1300 879 867.
