{"id":5624,"date":"2015-04-14T18:08:46","date_gmt":"2015-04-14T08:08:46","guid":{"rendered":"http:\/\/www.dbalawyers.com.au\/?p=5624"},"modified":"2022-10-27T21:20:18","modified_gmt":"2022-10-27T10:20:18","slug":"good-news-for-smsfs-and-bankruptcy-comes-with-a-caution","status":"publish","type":"post","link":"https:\/\/www.dbalawyers.com.au\/contributions\/good-news-for-smsfs-and-bankruptcy-comes-with-a-caution\/","title":{"rendered":"Good news for SMSFs and bankruptcy comes with a caution"},"content":{"rendered":"

\"GoodA 2015 Supreme Court decision is both good news and a caution for contributions to super in the context of business failure<\/em><\/p>\n

A recent court decision demonstrates what can happen when a business borrows from a bank to make large super contributions to an SMSF, and then the business folds.<\/p>\n

The Court of Appeal division of the Victorian Supreme Court handed down the decision of Australasian Annuities Pty Ltd<\/em> [2015] VSCA 9<\/a> (\u2018AA 2015\u2019) this year. In addressing one of the lines of argument, the case suggests that the SMSF was entitled to keep the money. However, the other line of argument involved the application of a well-established rule, which meant that the bank was entitled to its money back.<\/p>\n

The facts<\/h3>\n

Australasian Annuities Pty Ltd (\u2018AA\u2019) carried on a financial planning business. More specifically, AA acted as trustee of a family trust, and in that capacity acted as a service entity, providing management, administration, accommodation and staffing services to another entity, which held the relevant financial services licence and received financial planning client commissions and the like.<\/p>\n

On 7 May 2007 a facility with a limit of $2.5 million was signed with Macquarie Bank. Security for the loan included a registered first ranking fixed and floating charge over the whole of the assets and undertakings of AA.<\/p>\n

Ten days later Macquarie Bank advanced $2.5 million to AA pursuant to the facility.<\/p>\n

The sole director of AA had an SMSF along with his wife and sons. A significant portion of the $2.5 million was contributed to the SMSF.<\/p>\n

The fortunes of AA appear to have waned and on 29 June 2009 receivers and managers were appointed in respect of AA. The receivers and managers were appointed by Macquarie Bank under securities conferred on the bank securing the advance made by Macquarie Bank to AA.<\/p>\n

The receivers and managers of AA brought a claim in AA\u2019s name against both the SMSF trustee and the financial planner who was the sole director of AA, aiming to recover at least some of the $2.5 million. As the financial planner had since been declared bankrupt, the claim only proceeded against the SMSF trustee.<\/p>\n

AA\u2019s first case to recover money failed before the Supreme Court in Australasian Annuities Pty Ltd<\/em> [2013] VSC 543<\/a>. AA 2015<\/em> was the result of AA\u2019s appeal, which was based on two main arguments.<\/p>\n

The argument that the SMSF was a \u2018volunteer\u2019<\/h3>\n

The receivers and managers of AA attempted to claw back money on the basis that the trustee of the SMSF received money \u2018as a volunteer\u2019. In simplified terms, this was an argument that the money should be returned because the trustee of the SMSF had given nothing in return for the money and therefore should be forced to make restitution by paying back the money.<\/p>\n

In a welcome result for SMSFs, the majority held that the trustee of the SMSF did in fact provide valuable consideration in exchange for the contributions, and therefore this aspect of AA\u2019s argument failed. In an earlier High Court decision of Cook v Benson<\/em> [2003] HCA 36<\/a>, the High Court had previously held that superannuation funds provide consideration in exchange for contributions. In that case, the parties had dealt at arm\u2019s length. The majority in AA 2015 essentially followed the High Court\u2019s reasoning.<\/p>\n

The case illuminates that the valuable consideration given by an SMSF trustee in exchange for contributions are the obligations of the SMSF trustee to provide beneficiaries with the rights and benefits under the rules of the fund. These rights and obligations include that an SMSF trustee must:<\/p>\n