Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be complicated and difficult to understand. A question we often get asked here at Bankruptcy Experts Adelaide is 'what happens to my super if I apply for Bankruptcy'? The answer for most is straightforward, if your super is usually 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, take into account the evolving number of members of Self-Managed Super Funds ("SMSFs") in the last few 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 Experts Adelaide is not suggesting this short article is the entire story, if you have any questions feel free to consult with us on 1300 795 575. Regardless if you call us or somebody else it does not matter, just please don't walk into bankruptcy blind when it comes to your SMSF in fact we encourage you get both legal and financial advice before proceeding with any of the actions indicated 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 grouped as a 'disqualified person'. And a disqualified individual cannot operate as an Individual Trustee. This poses a problem because usually most of the SMSFs are just 2 people, which means the two of these members must also be the individual trustees. The position of trustee sets a lot of legal rules, and if you are in this position I would highly urge you to be familiar with them all-- for example 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 rather harmful to a SMSF and as you can imagine the process of Bankruptcy for a SMSF is rather convoluted.

How much time 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 need to be restructured. This means that you will want to consider your whole structure and make sure it is meeting the basic conditions, including things like 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 consider, 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 continuously keeping the ATO informed of what is happening. This indicates 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 need to also notify ASIC of their resignation.

In the course of 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 Experts Adelaide for some free advice on 1300 795 575.

What if I use a single member fund?

If you are a single member fund, then you will need to appoint a new director, and it will then end up being their obligation to oversee the sale and transfer 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 have to decide if they choose to remain as a single member SMSF, or if they want to roll all of it into a managed fund. If both members are entering bankruptcy, then they would need to sell all assets at once and transfer the liquid assets to the managed fund.

From that you can notice how when it comes to Bankruptcy, even though one single member is dealing with issues, it can affect the very existence of an SMSF. If you are at this point facing this matter yourself, or with a partner in a SMSF, please seek financial advice to make sure you are meeting the ATO requirements.

A simple solution ...

As I suggested earlier, a basic solution to your SMSF issue is to put your super back into a normal regulated managed fund before bankruptcy and save yourself all the problems outlined above. Bankruptcy is never easy, but finding proper advice is the best first step. If you want to discuss your options further, give us a call at Bankruptcy Experts Adelaide or visit our website: www.bankruptcyexpertsAdelaide.com.au or just call us on 1300 795 575.