SMSF trustees who have entered into voluntary bankruptcy must be aware they cannot continue to act as a trustee or director of a corporate trustee of an SMSF, a law firm has warned.
Townsends Business and Corporate Lawyers solicitor Jeff Song said while bankruptcy is a serious issue for everyone, SMSF members need to take additional measures.
The super laws specifically disqualify any undischarged bankrupt person from acting as a trustee or director of a corporate trustee of an SMSF and this disqualification extends to those who are bankrupt under the laws of foreign countries.
SMSF trustees would have formally declared they understand their obligations as a trustee by signing a mandatory ATO declaration form. The commissioner can prosecute those who do not comply with the relevant legislation, which may result in fines or imprisonment.
“Further, the superannuation laws expressly prohibit any representatives, that is, enduring attorneys, from acting as representative trustees on behalf of bankrupt disqualified trustees,” Song said.
Trustees who have been disqualified must also exit the SMSF as a member within six months of becoming bankrupt to comply with the requirement that all members must be trustees or directors of the corporate trustee of the SMSF.
“Accordingly, his balance in the SMSF must be carefully dealt with after seeking both legal and financial advice,” Song said.
“Generally, superannuation assets of a bankrupt held in a complying superannuation fund are protected from the creditors, however, certain contributions made to the SMSF may not be protected if the main purpose of the contributions was to keep the assets from being available to the creditors.”
While these situations may be a rarity, various precautionary measures can be included in the terms of the trust to avoid issues such as automatic retirement of a trustee who becomes bankrupt or otherwise disqualified to act as a trustee, he added.
