All Australians are encouraged to provide for their retirement through contributions to a superannuation fund under Government policy. That policy also extends to ensuring that a person’s interest in a regulated super fund is protected, in the event that he or she becomes bankrupt. According to the Australian Investment Institute the current average superannuation payout is $130,000 for males and $45,000 for females.
Ensuring your future is protected in financial matters should always be put in the hands of qualified professional and a second opinion is always advisable. Unfortunately for one such bankrupt controlled through our Sunshine office, this lesson has been learnt the hard way.
Advice was sought by the debtor from a “turn-around management firm” regarding superannuation monies. That firm purported to be experts in the field of insolvency.
The advice obtained (with somewhat misguided knowledge) was that ‘superannuation monies and any assets acquired with said monies would be protected in the case of bankruptcy, regardless of whether taken out before or after bankruptcy is declared’.
This advice is not entirely correct – but that is discussed later in this article.
Based on the advice from the turnaround specialist, the debtor withdrew $200,000 from a super fund and purchased a property with the monies. After the purchase, the debtor declared bankrupt with ITSA, believing the property was protected.
The file was later transferred to our Sunshine Coast office for review on whether the property could be realised for the benefit of creditors. Our review of the matter indicated that the property was available to creditors and consequently the bankrupt lost their property.
Why? Let’s review the legislation.
Section 116(1)(a) starts with what property is available to a bankruptcy trustee:
all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge;
Section 116(2) then deals with the issue of superannuation funds.
116(2) Subsection (1) does not extend to the following property:
(d) subject to sections 128B, 128C and 139ZU:
(iii) the interest of the bankrupt in:
a regulated superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993 ); or
(B) an approved deposit fund (within the meaning of that Act); or
(C) an exempt public sector superannuation scheme (within the meaning of that Act);
(iv) a payment to the bankrupt from such a fund received on or after the date of the bankruptcy, if the payment is not a pension within the meaning of the Superannuation Industry (Supervision) Act 1993;
In short, any funds held in a regulated super fund at the date of bankruptcy are exempt.
Section 116 (n), (2D) (3) then go onto to state that any assets acquired after the date of bankruptcy, primarily with super monies held in a regulated superannuation fund at the date of bankruptcy, are exempt from realisation.
The key to the protection provisions is that they only come into effect at the date of bankruptcy – not before.
If super monies are withdrawn prior to bankruptcy they lose their protected status and the funds become available to a bankruptcy trustee. This includes any assets acquired with those monies.
So the moral to this sad story is… Make sure you are getting advice from a qualified Professional and not some alleged turnaround specialist who may have no formal qualifications in the field. At the very least, seek a second opinion before making any final decision.