Bankruptcy, Will I lose my Superannuation?

Bankruptcy in Australia can be complicated and perplexing. A question we often get asked here at Bankruptcy Experts Port Macquarie is 'what happens to my super if I declare 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 nothing at all 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, consider the evolving number of members of Self-Managed Super Funds ("SMSFs") in recent years; the ATO tells us it has increased Australia-wide from 758,589 in 2009 to 1,011,689 in 2014. So what happens to these Superfunds when it involves Bankruptcy?

Remember Bankruptcy Experts Port Macquarie is not implying this post is the entire story, if you have any questions feel free to get in touch with us on 1300 795 575. Whether 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 fact we highly recommend you seek 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 facing bankruptcy, you will be classified 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 both of these members have to also be the individual trustees. The job of trustee presents a lot of legal rules, and if you are in this role I would highly recommend you to become knowledgeable about them all-- including 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 rather damaging 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 happens 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 entire structure and ensure that it is meeting the basic conditions, including 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 keep in mind, sometimes the most effective plan would be to simply roll the fund into an industry or corporate fund.

Beyond these large scale reorganizing issues, there is a lot of paperwork to deal with too, and you need to be constantly keeping the ATO informed of what is happening. This means you will need 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 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 Port Macquarie for some free advice on 1300 795 575.

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 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 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 would like to roll it all into a managed fund. If both members are entering bankruptcy, then they would definitely need to sell all assets promptly and move the liquid assets to the managed fund.

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

A simple solution ...

As I suggested earlier, a simple solution to your SMSF situation is to put your super back into a normal regulated managed fund before bankruptcy and save yourself all the frustrations 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 Experts Port Macquarie or visit our website: www.bankruptcyexpertsPortMacquarie.com.au or just call us on 1300 795 575.