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Win for bankrupt SMSF member in WA court

Win for bankrupt SMSF member in WA court

Scales of Justice
Miranda Brownlee
05 December 2018 — 2 minute read

The Supreme Court of Western Australia has granted a bankrupt SMSF member leave to act as director of the corporate trustee, enabling the fund to meet the definition of an SMSF in the SISA.

In the case of GRD -v- BJD [2018] WASC 374, the plaintiff, who was an undischarged bankrupt, sought orders from the Supreme Court of Western Australia to act as director of Semohour Pty Ltd, the trustee of his SMSF, the Controlled Risk Superannuation Fund.

The defendant, who is also the other member of the SMSF and his former wife, opposed the application.

The plaintiff became bankrupt after a business he was conducting was adversely affected by competition and failed.

He was a guarantor of the debts of the business. When the guarantee was called up, he was unable to meet the liabilities and was forced into bankruptcy.

In her affidavit, the defendant called into question both the business acumen of the plaintiff and his honesty.

She alleged that certain decisions in relation to the business were taken without her knowledge and to her detriment.

The plaintiff and the defendant were separated since March 2015 and were granted a divorce order on 16 July 2016.

The plaintiff stated that he had never been involved in the management or control of Semohour, which the defendant did not dispute.

He also said that they had reached an agreement in the Family Court which would allow the defendant to roll out of the fund.

Master Craig Sanderson said that looking at the plaintiff’s evidence, it was difficult to see on what basis she raised the objection to the plaintiff being a director of Semohour.

“Not having the plaintiff as a director of Semohour means the fund is non-compliant and that may have adverse consequences for both the plaintiff and the defendant,” Mr Sanderson said.

"Without analysing the position in detail, the taxation concessions offered to SMSFs may not be available to the fund. While that would be a penalty for the plaintiff it would also be a penalty for the defendant."

Mr Sanderson determined that he was satisfied that the order should be made, given that Semohour has a very limited role and there is no prospect of it being a trading corporation.

“Once a financial settlement is reached in the Family Court proceedings between the plaintiff and the defendant, the plaintiff will be the sole beneficiary of the fund and the defendant will not be at risk were there to be any mismanagement of the corporation on the part of the plaintiff,” the associate stated.

“Furthermore, the conditions imposed by ASIC would offer protection to any persons who might be affected by the plaintiff being involved in the management of the corporation.”

An ATO spokesperson pointed out that while the decision enables the plaintiff to be a director of a corporation and therefore satisfy the definition of an 'SMSF’ in section 17A of the Superannuation Industry (Supervision) Act 1993, as an undischarged bankrupt, the plaintiff, and the corporate trustee, is a ‘disqualified person’ under section 120 of the Superannuation Industry (Supervision) Act 1993 (SISA).

"It is an offence for a person who is a disqualified person to act as a trustee of an SMSF. The leave granted by the Supreme Court of Western Australia (WASC) under section 206G of the Corporations Act 2001 does not impact on the disqualified status for SISA purposes," the ATO stated.

"The WASC decision does not preclude the Commissioner of Taxation from making the fund non-compliant if it is considered appropriate to do so on the facts. This would have taxation implications for the fund."

 

Win for bankrupt SMSF member in WA court
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