In the matter of Absolute Vision Technologies Pty Ltd (subject to deed of company administration) [2024] NSWSC 1010 where a prior self managed superannuation fund (SMSF) trustee had failed to transfer title to a new trustee, a court order (more accurately speaking, ‘judicial advice’) was required to sell an asset to transfer the proceeds to the SMSF.
This recent New South Wales Supreme Court case highlighted the importance of transferring all assets to a new trustee in a timely manner. Failing to do so can result in breaches of superannuation, trust and contractual law and can have significant negative consequences for the prior trustee(s), new trustee(s), SMSF member(s) and future property purchasers.
Facts
The applicant for the relevant judicial advice was the voluntary administrator for the prior SMSF trustee.
A summary of the key facts follows:
- A property (Property A) was purchased by an SMSF (ie, by its trustee company on trust for the SMSF).
- The SMSF underwent a change of corporate trustee.
- After the change of trustee, the prior trustee failed to convey title to Property A to the new trustee.
- Even after the change of trustee, Property A continued to be reflected in the SMSF’s books as an asset of the SMSF.
- The prior trustee contracted to sell multiple properties to a single new purchaser. One of these properties was Property A.
- The new purchaser had received finance based on the plan that all properties were being purchased together.
Decision
Having considered the governing rules of the fund, the change of trustee deed, and superannuation and trust legislation, Black J noted that the failure to transfer title to property after the change of trustee:
- created a bare trust in favour of the SMSF whereby the prior trustee held the property for the new trustee on behalf of the SMSF; and
- resulted in various breaches of trust and superannuation law.
Black J noted that it is appropriate for the bare trustee to seek judicial advice to confirm the existence of the bare trust and to allow for any action (other than a transfer to the new trustee) to be taken. This is the case even when all parties are in agreement that a bare trust exists and that a sale is desirable.
Favourable factual context
The facts in this case were favourable to the SMSF’s interests. The view that the prior trustee was holding the property as bare trustee for the SMSF was supported by the administrator, the new trustee, the SMSF members and the directors of the previous trustee.
It is easily foreseeable that in circumstances where there is a dispute as to the original intended owner of the property such an order may not be as easily granted. For example, if the original purchase contract did not record the purchaser as the prior trustee “as trustee for” the SMSF, or if the prior trustee’s books incorrectly showed the property as an asset of its business, then the rights of the SMSF may have been uncertain.
Additionally, Black J dedicated considerable comment to the negative consequences that would have been suffered by multiple parties, other than the SMSF, if the judicial advice, that the administrator was justified in selling the property and passing the proceeds to the SMSF, was not provided.
Conclusion
This case highlights the need for timely transfer of assets upon a change of trustee. This case also highlights the risks associated with a company having more than one role as the SMSF assets could have easily been the centre of a dispute between the company’s creditors and the SMSF trustees/members.
This is a prime example of the benefits of a sole purpose corporate trustee for SMSFs.
Related articles
- Changing SMSF trustees – why advisers should be more alert to the tips and traps
- Leave SMSF change of trustee to the lawyers
- Perry v Nicholson [2017] QSC 163: important lessons on SMSF succession planning
- The trustee–member rules explained: Part 1
- The trustee–member rules explained: Part 2
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice should be obtained from a licensed financial adviser under the Corporations Act 2000 (Cth).
Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Daniel Butler, Director ([email protected]) and Cassandra Hurley, Lawyer ([email protected]) DBA Lawyers
09 September 2024
