A recent Federal Court decision has held that a transfer of units in a unit trust to an SMSF was void pursuant to s 128B of the Bankruptcy Act 1966 (Cth) (BA).
The decision of Ruhe (Trustee) v Rodmarg Pty Ltd, in the matter of Bankrupt estates of Power [2024] FCA 638 demonstrates the circumstances where contributions into a superannuation fund will not protect assets.
Facts
The applicant in this case was the trustee in bankruptcy of Mr and Mrs Power seeking orders for relief under the BA.
In summary:
- Mr and Mrs Power were the only members of the Power Secure Self-Managed Super Fund (Fund).
- The trustee of the Fund was Rodmarg Pty Ltd, the first respondent.
- On 13 August 2014, Mr and Mrs Power transferred 10 units in a unit trust which they held personally to the Fund for no consideration. *
- Mr and Mrs Power later stated that the purpose of the transfer was asset protection from creditors.
- On 22 March 2016, Mr Power was made bankrupt.
- On 30 November 2017, Mrs Power was made bankrupt.
- Mr Power died on 21 September 2022.
* Although not dealt with by the decision, we note for completeness that the transfer of units may have contravened the prohibition on related party acquisitions under s 66 of the Superannuation Industry (Supervision) Act 1993 (Cth).
Legislative context
The applicant relied on numerous sections of the BA that operate to void certain transactions by or on behalf of a person who later becomes bankrupt.
Section 128B(1) specifically deals with transfers that are contributions into superannuation funds and relevantly provides:
Transfers that are void
A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
- the transfer is made by way of a contribution to an eligible superannuation plan; and
- the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and
- the transferor’s main purpose in making the transfer was:
- to prevent the transferred property from becoming divisible among the transferor’s creditors; or
- to hinder or delay the process of making property available for division among the transferor’s creditors; and
- the transfer occurs on or after 28 July 2006.
Decision
With regard to s 128B and the transfer of units into the Fund, the court was satisfied that:
- the Fund was an eligible superannuation fund for the purposes of s 128B;
- the units in the unit trust would probably have become part of the bankrupt estates or available for distribution to creditors if the units had not been transferred into the Fund;
- Mr and Mrs Power’s main purpose in making the transfer was to prevent the units from becoming divisible; and
- the transfer occurred after 28 July 2006.
The court therefore held that pursuant to s 128B of the BA the transfer of units was void. The court also stated that the transfer would also have been void under s 121 of the BA which deals with general (ie, non-superannuation) transfers to defeat creditors
Conclusion
Members who are facing bankruptcy should be aware that contributions into their SMSFs will not automatically protect their assets from creditors. As this case demonstrates, the relevant provisions of the BA can operate to void a near decade old transaction.
Related articles:
- New option for SMSFs with bankrupt member
- More clarity for SMSFs with a bankrupt member
- Good news for SMSFs and bankruptcy comes with a caution
- New case on superannuation, bankruptcy and death benefits
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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 can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Bryce Figot ([email protected]), Special Counsel and Fraser Stead, ([email protected]) Lawyer.
DBA LAWYERS
26 June 2024
