Amendments to the law affecting superannuation are in the pipeline which will have a significant bearing on the advice given to clients who are risk averse or having financial difficulties.
If a person’s superannuation entitlements are not with a regulated fund, all of the entitlements automatically vest in the person’s bankruptcy trustee. This fact is not as well known as it should be.
On the other hand, where the superannuation entitlements are in a regulated fund, only the entitlements above the Reasonable Benefits Limit will automatically vest in a person’s bankruptcy trustee.
These rules will soon change as the Reasonable Benefits Limit will be abolished. This will mean that all of a bankrupt’s entire superannuation entitlements in a regulated fund will be protected from a bankruptcy trustee, subject always to the so-called clawback provisions which, to complicate things further, are undergoing amendment.
A bit of history. There was a general perception that the high profile High Court case of Cummins SC had prevented bankruptcy trustees from clawing back contributions to superannuation funds when, for example, the contributions were made to avoid the reach of creditors. That has now prompted the proposed changes to the Bankruptcy Act which specifically target superannuation so that there is more certainty as to the power of bankruptcy trustees to target superannuation contributions, even when the contributions were not made by the bankrupt himself or herself.
As the proposed changes are specifically directed at superannuation, it is to be expected that Courts will be more willing to give them more effect than the general claw back provisions.
The law in this area is complex and professional insolvency advice is recommended for clients with significant superannuation entitlements which could be at risk at some time in the future.
If you are interested in receiving further information please contact Ray Tolcher on (02) 4962 2294.
