Many bankrupts are unaware of, or underestimate, the impact of bankruptcy on their ability to continue to operate a self-managed superannuation fund.

Many think that as their superannuation is protected from bankruptcy, they can continue to manage their self-managed superannuation fund whilst bankrupt. This is not the case.

An undischarged bankrupt is disqualified from managing a corporation and from acting as a responsible officer of a trustee of a superannuation entity¹. It is an offence under the Corporations Act 2001 (Cth) and the Superannuation Industry Supervision Act 1993 (Cth) (SIS Act) for a person to continue to do so.

Once a responsible officer of a trustee of a self-managed superannuation entity is disqualified, the fund no longer complies with the SIS Act and there is a 6 month grace period to rectify that status, otherwise the fund will cease to be a compliant self-managed superannuation fund under the SIS Act.

The Federal Court has the power to make orders to permit a bankrupt to manage a corporation; to act as a responsible officer of a trustee of a self-managed superannuation entity and to extend any time limits prescribed by the SIS Act.

We recently successfully assisted clients to obtain urgent orders from the Federal Court granting them permission to manage corporate trustees of their self-managed superannuation fund.

A link to the reported decision is here.

Our clients did not appreciate that their bankruptcy prevented them from managing the corporate trustees of their superannuation fund. Whilst still bankrupt, they had caused the trustee company of their self-managed superannuation fund to exchange contracts for sale on real property owned by the fund, in aid of ultimately winding up the super fund.

An urgent application to Court was required in order to obtain orders and declarations granting them leave to manage the corporates trustees of their self-managed superannuation fund; validate the sale of the super fund’s property; extend the time to wind up the super fund and to relieve our clients from any civil liability for continuing to act as officers of the companies whilst bankrupt.

21 days advance notice of the application had to be given to the Australian Securities and Investments Commission (ASIC) and to the Commissioner of Taxation, before the court application could be made.

The Court took into consideration the following facts and matters in determining whether or not to grant the orders sought:

1.    why it was necessary for our clients to continue to manage the corporations;
2.    the interests of third parties; the shareholders; creditors and employees of the relevant companies, and the public at large;
3.    the nature of the disqualification;
4.    our clients’ character and conduct since the disqualification;
5.    the structure of the company and the nature of the business;
6.    the potential for repetition of contraventions;
7.    the circumstances in which the debts giving rise to the bankruptcy were not paid and the extent to which our clients had cooperated with the trustee in bankruptcy; and
8.    the attitude of ASIC, the Commissioner of Taxation and the bankruptcy trustees to the proposed orders.

The Court granted our clients permission to manage the corporations in order to permit the settlement of the sale of the property and to wind up the fund, and extended the six month grace period under the SIS Act to allow this to occur.

Orders were also obtained validating the steps that our clients had purported to take as directors of the companies whilst disqualified and relieving them from any civil liability for continuing to so act. The Court was satisfied that our clients had laboured under a misapprehension of the legal position regarding their capacity to continue to manage the corporations whilst bankrupt and that they had not acted dishonestly by continuing to so act.

This case highlights the importance of making bankrupts aware of the impact of bankruptcy on their ability to continue to manage their self-managed superannuation fund and of the steps that they need to take within six months of their bankruptcy to be able to continue to do so.

We have expertise in successfully obtaining these orders from the Court.

Please do not hesitate to get in touch with us should you or your clients require assistance to achieve similar orders from the Court.

¹ 206B(3) of the Corporations Act 2001 (CA); s120(1)(b) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).