Bankruptcy in Australia can be complicated
and difficult to understand. A question we commonly get asked here over at
Bankruptcy Advice Sydney is 'what happens to my super if I apply for
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 absolutely
nothing happens; your super is 100 % safe when it comes down to Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, think about the
expanding number of members of Self-Managed Super Funds ("SMSFs")
lately; 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 concerns Bankruptcy?
Remember Bankruptcy Advice Sydney is not
suggesting this post is the complete story, if you have any questions feel free
to consult with us on 1300 879 867. Whether or not you call us or someone else
it doesn't matter, just please don't walk into bankruptcy blind when it comes
to your SMSF in truth we encourage you seek 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
confronting 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 both of
these members will need to also be the individual trustees. The duty of trustee
sets a lot of legal rules, and if you are in this role I would highly encourage
you to get knowledgeable about 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 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 after I'm bankrupt?
So what happens 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 need to consider your entire structure
and ensure that it is meeting the basic conditions, including things like
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 consider, sometimes the most suitable 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 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 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 uncertain call Bankruptcy Advice Sydney for some free
advice on 1300 879 867.
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 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
clear away the property and halve the proceeds. They would then want to decide
if they choose to remain as a single member SMSF, or if they would like to roll
everything into a managed fund. If both members are entering bankruptcy, then
they would need to sell all assets at once 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 already 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 before 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 options further, contact us at
Bankruptcy Advice Sydney or visit our website:
www.bankruptcy-advice.com.au/Sydney.com.au or just call us on 1300 879 867.
