“In this case, the husband was disqualified under the SIS Act due to being an undischarged bankrupt. He was automatically disqualified from managing a corporation under section 206B(3) of the Corporations Act and was a disqualified person under section 120(1)(b) of the SIS Act and therefore could not apply for a waiver under section 126K of the SIS Act,” Wong said.

“In his application to the court, he sought leave to manage the corporate trustee of his and his wife’s SMSF for the benefit of himself and his wife. They had always been the only members of the SMSF and the court inferred that ASIC did not wish to oppose this application to the court.”

Wong continued that the court heard the cause of the debts of the construction business were described as industry-wide trends, including increased operating costs and delays resulting from market forces in the wake of the COVID-19 pandemic and not due to any conduct by the applicant.

The SMSF owned three parcels of real estate and a Westpac cash deposit, totalling net assets of at least $2.2 million.

“Section 120 of the SIS Act disqualifies individuals from acting as trustee or director of a corporate trustee of a SMSF for various reasons including conviction of an offence in respect of dishonest conduct, incurring a civil penalty, and being insolvent,” he said.

“Insolvency is defined in section 10 to include an undischarged bankrupt or where a personal insolvency agreement has been entered into and the certificate of satisfaction (S232 Cert) of all obligations has not been given by the trustee of the PIA meaning the person agrees to enter into the PIA settle debts and avoids bankruptcy,” he said.

Furthermore, he said, s126K of the SIS Act imposes imprisonment and strict liability penalties for persons acting as trustee or director of a corporate trustee of a SMSF while they are a disqualified person.

“Section 17A(10) of the SIS Act effectively prevents the legal personal representative of a disqualified person from being swapped into the directorship or trusteeship role while the person is disqualified,” he added.

“Section 126B of the Act is quite limited and only allows for a waiver of disqualified status to be applied for if the person is disqualified due solely to an offence of dishonest conduct and does not extend to the limb of insolvency or a PIA under section 120.”

Finally, he said s206B(3) and (4) of the Corporations Act 2001 automatically disqualifies a person who is an undischarged bankrupt from managing a corporation or if the person has entered into a PIA which has not been fully complied with.

“This differs to section 10 ‘insolvent under administration’ definition in the SIS Act paragraph (d) which requires the S232 Cert rather than just ‘full compliance’ with the PIA,” he said.

“In this case, the court was satisfied, with regards to the applicant’s character and good conduct, the nature, purpose and size of the SMSF, and the unlikelihood of any further contraventions by the applicant in managing the SMSF corporate trustee, that he could be granted leave to manage the SMSF corporate trustee under section 206G(1)(c) of the Corporations Act.

“It also stated that it be ordered under section 126J(1)(b) of the SIS Act that he is not a disqualified person for that limited purpose. This could be compared to the earlier Federal Court decision in Re Barry [2024] FCA 13 (11 January 2024) where the limited purpose for the court’s declaration was for the sale of a LRBA property and to wind up the SMSF.”