Court may allow bankrupts to be trustees

bankrupt SMSF trustees

SMSF trustees that have become bankrupt may be able to remain as trustees, but will require a spotless record to do so.

SMSF trustees that have been disqualified after being declared bankrupt may be able to have that overturned in the courts, but will require a clean compliance record based on recent case history, an SMSF technical expert has claimed.

Heffron SMSF technical and education services director Leigh Mansell said SMSF trustees or directors of a corporate trustee who had been declared bankrupt were also considered a disqualified person and, under superannuation law, could no longer act as a trustee of an SMSF in any capacity.

“What we are dealing with in regards to a bankrupt person is they can’t be a trustee and nobody can be trustee their place, and they can’t remain a member of the SMSF,” Mansell said during a technical briefing earlier today adding a possible solution was to apply to the court for their trustee status be reinstated for the purposes of running an SMSF.

“Step one is to apply to the court for an order that the trustee is considered a non-disqualified person for the purposes of Superannuation Industry (Supervision) legislation,” she said.

“If we are dealing with a corporate trustee, they can apply to the court to be appointed as a director again.

“If the trustee is successful in those things, then there will be a situation where despite being bankrupt, the bankrupt member can be a trustee or director of the corporate trustee of the fund.”

She said successfully achieving this outcome via the courts did not happen very often, but the case of Macalister [2021] FCA 1455 indicated it was possible for those with very good compliance records.

The trustees went bankrupt after being sued by the new owners of a company they were linked to 20 years ago, but were unable to pay, and the Federal Court did not find any dishonesty related to the bankruptcy, she noted.

“[The court] looked at things like did they cooperate with the trustee in bankruptcy, which they did, as well as their character and conduct since disqualification, and that seemed to be okay,” she said.

“They also had a clean compliance history for the fund itself and never had any compliance issues with the corporate trustee either.

“There was no objection from the Australian Securities and Investments Commission or the ATO or the trustee bankruptcy in relation to this application and so the court lifted the disqualified person status and allowed them to be directors of a corporate trustee.

“This is another thing that you might want to think about if one of your clients go bankrupt and you are thinking what are we going to do?

“Maybe depending on the circumstances of your client’s case, it might be worth applying to the Federal Court, especially if you’re a cleanskin.”

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