Going Bankrupt Australia can be complicated and confusing. A question we usually get asked here at Bankruptcy Advice Adelaide is ‘what happens to my super if I declare Bankruptcy’? The solution for most is simple, if your super is usually in a regulated fund or industry fund like Sunsuper or Host Plus then very little happens; your super is 100 % safe when it comes down to Going Bankrupt.
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 increased Australia-wide from 758,589 in 2009 to 1,011,689 in 2014. So what happens to these Superfunds when it concerns Going Bankrupt
Remember Bankruptcy Advice Adelaide is not implying this short article is the whole story, if you have any questions feel free to consult with us on 1300 879 867. No matter if you call us or someone else it does not matter, just please don’t walk into bankruptcy blind when it comes to your SMSF actually we suggest you obtain 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 Going Bankrupt, you can not be a part of a SMSF. Why? Because if you are dealing with bankruptcy, you will be labeled 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 the two of these members need to also be the individual trustees. The position of trustee presents a lot of legal rules, and if you are in this role I would highly recommend you to get 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 very destructive to a SMSF and as you can assume the process of Going Bankrupt for a SMSF is rather convoluted.
How much time do I have so as to restructure my SMSF Fund after I’m bankrupt?
So what takes effect 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 complete structure and ensure it is meeting the basic conditions, including having a new trustee that is not experiencing issues with Bankruptcy. The Australian Tax office will give 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 restructuring 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 indicates you 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 must 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 not sure call Bankruptcy Advice Adelaide for some free advice on 1300 879 867.
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 end up being their duty 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 clear away the property and halve the proceeds. They would then need to decide if they would like to remain as a single member SMSF, or if they intend to roll all of it into a managed fund. If both members are entering bankruptcy, then they would definitely need to sell all assets at once and transfer the liquid assets to the managed fund.
From this you can see how when it comes to Going Bankrupt, even though one single member is dealing with issues, it can affect the very existence of an SMSF. If you are actually facing this trouble yourself, or with a partner in a SMSF, please seek financial advice to make certain you are satisfying the ATO requirements.
A simple solution …
As I suggested earlier, a straightforward solution to your SMSF situation is to put your super back into a normal regulated managed fund prior to bankruptcy and save yourself all the problems outlined above. Going Bankrupt is never easy, but receiving proper advice is the best initial step. If you want to discuss your options further, call us at Bankruptcy Advice Adelaide or visit our website: http://www.bankruptcy-advice.com.au/Adelaide.com.au or just give us a call on 1300 879 867.
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