The constitution of a corporate SMSF could be more critical during the appointment and succession of a director than trustees anticipate as the current laws are not always able to fill in gaps left by bad planning, according to an SMSF lawyer.
DBA Lawyers senior associate William Fettes said during a webinar that corporate succession planning should be a critical component for corporate SMSFs and a reliance on the Corporations Act was unlikely to help trustees.
“[Trustees] really need to read the constitution to determine what rules are around who is a director, who can be removed and who can be appointed. It really is one of those neglected documents,” Fettes said.
“I want to encourage everyone to think about their constitution and how that plays into the succession of corporate trustees for their SMSF as the Corporations Act really only has a limited role to play, unless you do not adopt any constitution for your company.”
He noted the Corporations Act 2001 has a limited role in corporate succession and only takes effect where a corporate trustee has a sole director and sole shareholder, which allows a legal personal representative to be appointed a director on behalf of a trustee that has lost capacity or is in debt.
However, he added SMSF trustees do not often have a sole director being the same person as the sole shareholder and the latter is held by someone else or in a trust, placing greater importance on the content of the constitution and its instructions regarding directors.
“We need to plan for smooth succession paths and what we are trying to achieve is for the executors of that person’s will to be able to become directors in relation to a deceased person or we want to ensure that the attorney, under the enduring power of attorney, can step in,” he said.
He said consideration should also be given to how children may be involved and whether their appointment would take place via a will or via direct appointments under successor director conditions within the constitution.
“You don’t want to always rely on the appointment power. Corporate succession is important and being able to put the right directors in at the right time to sign documents and implement decisions is really critical,” he said.