Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be complicated and difficult to understand. A question we often get asked here over at Bankruptcy Advice Perth is 'what happens to my super if I file for Bankruptcy'? The answer for most is simple, if your super is in a regulated fund or industry fund like Sunsuper or Host Plus then virtually nothing happens; your super is 100 % safe when it involves Bankruptcy.

What if I have a Self Managed Super Fund?

This is a growing concern, take into consideration the evolving number of members of Self-Managed Super Funds ("SMSFs") lately; 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 Perth is not proposing this article is the complete story, if you have any questions feel free to contact us on 1300 879 867. 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 actually we advise you find both legal and financial advice before proceeding with any of the actions proposed 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 going up against bankruptcy, you will be labeled 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 must also be the individual trustees. The duty of trustee causes a lot of legal rules, and if you are in this role I would highly encourage you to be aware of them all-- for example 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 destructive 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 transpires 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 have to consider your entire structure and make certain it is meeting the basic conditions, including things like having a new trustee that is not suffering from issues with Bankruptcy. The Australian Tax office will supply you a 6 month 'grace period' to get this done before you face penalties. And bear in mind, sometimes the very best 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 continuously keeping the ATO informed of what is happening. This suggests you have 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 need to inform the ATO using the form NAT 3036 (Found on the ATO website) and they must also notify ASIC of their resignation.

Over 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 Perth 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 have to appoint a new director, and it will then become their responsibility to oversee the sale and relocation 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 take away the property and halve the proceeds. They would then want to decide if they would like to remain as a single member SMSF, or if they intend to roll everything into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets as soon as possible and transfer the liquid assets to the managed fund.

From this you can notice how when it comes to Bankruptcy, even when one single member is facing issues, it can affect the very existence of an SMSF. If you are already facing this concern yourself, or with a partner in a SMSF, please seek financial advice to make certain you are fulfilling 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 prior to bankruptcy and save yourself all the frustrations outlined above. Bankruptcy is never easy, but getting proper advice is the best initial step. If you want to discuss your options further, give us a call at Bankruptcy Advice Perth or visit our website: www.bankruptcy-advice.com.au/Perth.com.au or just call us on 1300 879 867.