An article on Financial Review focuses on how the creditors may target the bankrupt estates that have money parked in Superannuation. It is true that the money parked in Super is exempt from being treated as bankrupt estate but the amount such a SMSF holder will receive in pension income will largely depend upon an income test. There is ample chance that a big part of the balance may go to the creditors.
Creditors eyeing bankrupt estates
For instance, a single-member SMSF will be charged 50% of all the pension income earned above $50,000. For four-member SMSFs, the threshold is $66,000. Those fund members who are using SMSF as a strategy to deflect money away from the creditors may find their money attached and put into their bankrupt estate.
Bankruptcy law succours SMSF holders
10 years ago, bankruptcy laws were made to support the Super holders who were wary about how their contributions would be treated. A decade has passed and some of the members of the sector are using the very laws to engage in dubious “money deflection”. Hence the move made by the court seems more than justified.
Trust deed
Another notable point raised is that the trust deed must have a provision using which SMSF members can initiate or culminate payments. This may ensure a level playing field. After all, it would mean that if a member is declared bankrupt, others can stop making pension payments in order to prevent them from going the creditor’s way.
Caveat: low interest rate is hiding many truths
There is also an associated caveat: interest rates are atypically low and this means that the debt repayment strategies which seem to be well placed for the moment are only so because the interest rates gives them that impression. Most of the businesses that look sound are not actually so and the pressure will begin to show once the interest rates correct themselves.
You can read the original article here.
If the bankruptcy law gets a fresh paint, it will be interesting to note how things go. For instance, how will those trustees be treated who use proceeds of a loan to make contributions to their Super and at the same time deflect a part of it to their family’s Super; all before announcing themselves bankrupt? Till now, the court’s verdict would have been fairly straightforward- fiduciary breach by the trustee but no fault of the family. Will liquidating firms keep ruing this loophole? Only time will tell.
