Bryce Figot, special counsel and Fraser Stead, solicitor with DBA Lawyers, said the decision of Ruhe (Trustee) v Rodmarg Pty Ltd, in the matter of Bankrupt estates of Power [2024] FCA 638 has held that a transfer of units in a unit trust to an SMSF was void under s128B of the Bankruptcy Act 1966 (Cth) (BA).
In this case, the applicant was the trustee in the bankruptcy of Mr and Mrs Power seeking orders for relief under the BA.
Mr and Mrs Power were the only members of the Power Secure Self-Managed Super Fund, while the trustee of the fund was Rodmarg Pty Ltd, which was also the first respondent.
In court, it was revealed that on August 13, 2014, Mr and Mrs Power transferred 10 units from a unit trust they owned personally to the fund without receiving any consideration. They later explained that the transfer was intended for asset protection against creditors.
On 22 March 2016, Mr Power was made bankrupt and on 30 November 2017, Mrs Power was made bankrupt. Mr Power subsequently died on 21 September 2022.
“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,” Figot said.
He continued that s128B(1) specifically deals with transfers that are contributions into superannuation funds, and states that 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.
“In this case, with regard to s128B and the transfer of units into the fund, the court was satisfied that firstly the fund was an eligible superannuation fund for s128B and 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,” Figot said.
“It also stated that 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 s128B of the BA the transfer of units was void. The court also stated that the transfer would have been void under s121 of the BA as well.”
Stead said that members facing bankruptcy should be aware that contributions to 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.”
