While assets held by a self-managed superannuation fund (SMSF) are protected from creditors in the event of bankruptcy, the act of being declared bankrupt can result in other significant issues for trustees of these funds.
"People talk about superannuation as an asset protection device, so you make contributions into super to avoid issues in bankruptcy. But in an SMSF you are creating problems for yourself because you are protecting yourself from bankruptcy, but then if you are declared bankrupt, you can't satisfy the definition of an SMSF because you can't be a trustee of the fund anymore," Cavendish Superannuation head of technical services Tim Miller said.
The situation would mean the assets of the SMSF would have to be rolled over into another type of super fund straight away. The benefits would not be accessible and would have to stay in the superannuation system but cannot remain in the SMSF, Miller said.
A small APRA (Australian Prudential Regulation Authority) fund may be a suitable alternative in this situation, but Miller said the problem for the bankrupt individual would then be to find a party to become an approved trustee of the fund, as there are not many service providers in the market willing to take on the responsibility.
According to Miller, this situation should be of concern to the SMSF sector and the broader superannuation industry because it may end up impacting not just bankrupt SMSF trustees, but also SMSF trustees that can no longer fulfill the role due to diminished capacity in old age.
