‘Out of Character’ Super Contributions Now Subject to Bankruptcy Law By Jenny Willcocks | August 2006
In September 2005, a Turk Alert was released about the Government’s consultation paper on proposed changes to the Bankruptcy Act 1996 to allow Trustees in Bankruptcy to recover excessive superannuation contributions. The Government has now determined not to proceed with this proposal on the basis that it was unduly complicated for both the bankruptcy and superannuation systems. In a Media Release on 27 July 2006, the Government announced that superannuation contributions made prior to bankruptcy with the intention to defeat creditors would be recoverable by Bankruptcy Trustees effective from that date. The media release indicates that legislation giving effect to this change will be provided as soon as practicable. Legislation proposed for introduction in the 2006 spring sitting of the Federal Parliament includes the Bankruptcy Legislation Amendment (Recovery of Excessive Superannuation Contributions) Bill (“the Bill”). Given that these changes commenced on 27 July 2006, it is hoped that the Bill will be passed quickly. The amendments are in response to a decision of the High Court in Corporate v Benson, which cast doubt on the power of the Trustee in Bankruptcy to recover superannuation contributions under the existing “claw back” provisions of the Bankruptcy Act. According to the media release, courts will now be given power when determining whether contributions are made to defeat creditors to take into account the member’s history of contributions and whether any of those contributions are “out of character”. For example, if a member’s average contribution was $1,000 a month and then shortly before becoming bankrupt a one off contribution of $25,000 was made, this may be determined by the court as being “out of character”. A fact sheet is available on the ITSA website www.itsa.gov.au. The proposed amendments include:
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The power of a Trustee in Bankruptcy to recover the value of contributions made by a bankrupt to defeat creditors if made to the bankrupt’s own superannuation fund or to a third party fund;
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Allow a Trustee in Bankruptcy to recover contributions made by a third party for the benefit of the bankrupt where the main purpose of participating in that arrangement was to defeat creditors of the bankrupt;
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Provide that any consideration given by the superannuation trustee for the contribution will be ignored in determining whether the contribution should be recovered by the Trustee in Bankruptcy;
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Allow the court to look at the pattern of contributions made by the bankrupt over time in order to determine whether any were “out of character” and therefore made with the intention to defeat creditors;
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Provide that the superannuation fund involved will not be required to repay fees and charges relating to the contributions or any taxes it has paid concerning the contributions; and
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Empower the Official Receiver to issue a notice to superannuation funds holding contributions that will freeze those funds to prevent the bankrupt rolling over, transferring them into another superannuation fund or dealing with them in any way.
TURKSLEGAL
Conclusion Obviously amendments will have to be made to the Bankruptcy Act as well as to the Superannuation Industry (Supervision) Act to deal with these changes. It is hoped that the involvement of trustees of superannuation funds will be kept to a minimum. Even so, superannuation funds will have to be able to deal with Notices from the OfďŹ cial Receiver recovering contributions and to adjust the accounts of the bankrupt accordingly.
For More Information Please Contact:
Jenny Willcocks Partner T: 03 8600 5001 jenny.willcocks@turkslegal.com.au
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