In this article we discuss:
The Bankruptcy Legislation Amendment (Superannuation Contributions) Bill 2006 (Bill) was introduced into the Senate on 6 December 2006. The Standing Committee on Legal and Constitutional Affairs (Senate Committee) has recommended that the Bill be passed in its current form.
Under the Bill, it is proposed that a trustee in bankruptcy may recover the value of contributions made to a superannuation plan in order to defeat creditors in one of the following circumstances:
- In the case of contributions made by a person who later becomes bankrupt:
- the contributions are made to an eligible superannuation plan on or after 28 July 2006 (an eligible superannuation plan means a regulated superannuation fund, an approved deposit fund, an RSA or a public sector superannuation scheme)
- the property would probably have become part of the bankrupt’s estate or would probably have been available to creditors if the property had not been contributed to superannuation, and
- the bankrupt’s main purpose in making the contributions was:
- to prevent the contributions from becoming divisible among the bankrupt’s creditors, or
- to hinder or delay the process of making property available for division among the bankrupt’s creditors.
- In the case of contributions made by a third party for the benefit of a person who later becomes bankrupt:
- the contributions are made to an eligible superannuation plan on or after 28 July 2006 by a person (transferor) for the benefit of a person who later becomes a bankrupt
- the transferor did so under a scheme to which the bankrupt was a party
- the property would probably have become part of the bankrupt’s estate or would probably have been available to creditors if the property had not been transferred, and
- the bankrupt’s main purpose in entering into the scheme was:
- to prevent the transferred property from becoming divisible among the beneficiary’s creditors, or
- to hinder or delay the process of making property available for division among the beneficiary’s creditors.
In this second situation, a benefit that is payable in the event of the bankrupt’s death is not to be subject to recovery by a trustee in bankruptcy.
In determining the bankrupt’s main purpose in either of these situations, a court can consider the bankrupt’s historical contributions pattern and whether any contributions were ‘out of character’ in determining whether they were made with the intention to defeat creditors. What this means in practice may need to be considered by the courts.
It is proposed under the Bill that:
- amounts paid to the trustee in bankruptcy following recovery of void superannuation contributions in either of these situations will be divisible property, and
- that a superannuation plan trustee should not bear any loss resulting from fees, charges and taxes paid in respect of the contribution. The trustee in bankruptcy must pay to the trustee of the eligible superannuation plan an amount equal to the amount debited against the contribution in respect of fees, charges and taxes. The Senate Committee suggested that, in practice, the official receiver may accept an amount net of fees, charges and taxes from the trustee of a superannuation plan. This remains to be seen.
The Bill includes provisions allowing a court to order payments to be made where the bankrupt has rolled over the original contribution to another superannuation fund. There will also be power to freeze a superannuation account pending action under the revised Bankruptcy Act. A mechanism is proposed for a member of an eligible superannuation plan to request consent from the official receiver to the cashing, debiting, roll-over, transfer or forfeiture of all or part of the member’s interest where a superannuation account-freezing notice is in force in relation to that member’s interest.
From a timing perspective, contributions to a superannuation plan will only be void if they meet one of the situations set out above and are made on or after 28 July 2006. However, the amendments relating to recovery of such contributions by the trustee in bankruptcy will not commence until a date to be fixed by Proclamation, after the Bill is passed.
The Bill provides protection for superannuation trustees from exposure to civil or criminal liability as a result of compliance ‘in good faith’ with a superannuation account-freezing notice or order. In addition, anything done (or not done) by the superannuation trustee in good faith to comply with a superannuation account-freezing notice or order is taken not to be in breach of SIS (eg the preservation requirements).
In their December 2006 paper ‘Prospects for superannuation levies beyond 2006–07’, Treasury and APRA announced APRA’s main focus for 2007 and beyond:
- APRA anticipates that the need for its current ‘supervision intensity’ will reduce from 2008–09 as a result of the decline in the number of superannuation funds.
- APRA will continue to do extensive supervisory work throughout 2007 associated with the wind-up of many superannuation funds as a result of licensing, monitoring licence-related conditions given by trustees during the licensing process and other post-licensing issues.
- APRA anticipates greater analysis of outsourcing from 2007–08, including reviews of service providers, and an increasing focus on unit-pricing arrangements and sub-funds.
From 1 July 2008, all employers will be required to contribute at least nine per cent of ‘ordinary time earnings’ to satisfy their SG obligations. An employer’s current SG contributions may not be sufficient if that employer is relying on a lower salary for SG purposes due to a ‘grandfathered’ historic notional earnings base or a lower earnings base set out in an industrial award or agreement.
Employers and trustees should start considering the implications of this change in relation to their employees and members, respectively, well in advance of 1 July 2008 as this change may:
- have implications for financial management of funds by trustees
- require deed amendments and new benefit certificates to be prepared
- affect funding of superannuation by employers for both accumulation and defined benefit funds, depending on the generosity of existing schemes, and
- affect ‘total employment cost’ remuneration arrangements by reducing ‘take-home’ pay.
More information
For information regarding possible implications for your business, contact a member of the Financial Services team.