Issue 133, 11 August 2006

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Articles in this edition include:

• Recovery of superannuation contributions made prior to bankruptcy — law to be amended

• Superannuation assets reach $905 billion at March 2006

• ASIC puts focus on superannuation reporting practices

• Thomson special offers and product alert

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Recovery of superannuation contributions made prior to bankruptcy — law to be amended

On 27 July 2006, the Attorney-General and the Assistant Treasurer jointly announced that the Bankruptcy Act 1966 will be amended to allow bankruptcy trustees to recover superannuation contributions that are made prior to bankruptcy with the intention to defeat creditors.

In particular, a bankruptcy trustee will be able to recover contributions made to the bankrupt’s own superannuation plan and that of a third party. The courts will also be able to take into account the person’s history of contributions and whether the contributions in question are ‘out of character’. Importantly, genuine contributions to superannuation for retirement income purposes will be protected from recovery.

According to the Assistant Treasurer, the amendments will address the potential problems highlighted in Cook v. Benson (2003) 53 ATR 195 and prevent unscrupulous debtors from transferring assets into superannuation when bankruptcy is looming. In Cook v. Benson, the High Court ruled that superannuation entitlements rolled over to other superannuation funds by a person who subsequently became bankrupt were not subject to the bankruptcy ‘clawback’ provisions and were therefore protected from creditors.

Superannuation bankruptcy amendments

Among other things, the proposed amendments to the Bankruptcy Act 1966 will:

• allow a bankruptcy trustee to recover the value of contributions made by the bankrupt to defeat creditors, where the contributions were made to the bankrupt’s own superannuation plan and that of a third party (along the lines of the current section 121 of the Bankruptcy Act 1966);

• allow the trustee to recover contributions made by a person other than the bankrupt for the benefit of the bankrupt where the bankrupt’s main purpose in participating in the arrangement was to defeat creditors; and

• provide that consideration given by the superannuation trustee for the contribution will be ignored in determining whether the contribution is recoverable by the bankruptcy trustee, thus overcoming the effect of the High Court decision of Cook v. Benson (2003) 53 ATR 195.

According to the Government, the effect of these amendments will be that payments to superannuation plans to defeat creditors would be recoverable in the same way as other payments or transfers to defeat creditors.

Proposal for recovery of ‘excessive’ benefits abandoned

The Assistant Treasurer also announced that the Government has decided not to proceed with its earlier proposal, which would have allowed for the recovery of ‘excessive’ superannuation contributions made prior to bankruptcy.

The Assistant Treasurer said the Government has decided not to proceed with this earlier proposal after accepting industry concerns that the proposed measures would have unduly complicated both the bankruptcy and superannuation systems.

Date of effect

The amendments are proposed to apply to any contributions made after 27 July 2006.

Further information

Further details are available on the Insolvency and Trustee Service Australia (ITSA) website. See also the Attorney-General and Assistant Treasurer joint media release No. 56.

This article appeared in Thomson’s Superannuation & Financial Service Bulletin (31 July 2006). Superannuation & Financial Service Bulletin is a comprehensive and informative superannuation news service. Special coverage is given to newly introduced legislation with contributions from business-focused experts.

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Superannuation assets reach $905 billion at March 2006

According to APRA, total superannuation assets grew 6.6% during the March 2006 quarter, bringing the overall value of superannuation assets to $905.4 billion.

Self-managed super fund (SMSF) assets grew 7.1% to $208.4 billion (representing 23% of all superannuation assets). As at 31 March 2006, there were 317,241 SMSFs (up 4,065 over the quarter).

The quarterly superannuation performance statistics are available on the APRA Website.

More details can be found in APRA media release No. 06.32, released 29 June 2006.

This article appeared in Thomson’s Superannuation & Financial Service Bulletin (31 July 2006). Superannuation & Financial Service Bulletin is a comprehensive and informative superannuation news service. Special coverage is given to newly introduced legislation with contributions from business-focused experts.

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ASIC puts focus on superannuation reporting practices

ASIC has released new information for superannuation trustees to ensure they meet their legal obligations to fund members regarding the reporting of material changes and significant events. The information is contained in QFS 163: I am a superannuation trustee. Do I need to notify members about member transfers without consent?, which is an extension of ASIC’s review of disclosure practices following the introduction of choice legislation in July 2005. The QFS is aimed at improving the clarity and timeliness of significant event reporting.

Any decision that fundamentally affects a fund member’s investment, including a decision to transfer a member’s benefits without their consent, is a material change or significant event that must be disclosed to that member, said ASIC’s Executive Director of Compliance, Ms Jennifer O’Donnell. She said it is imperative that members are advised of these decisions clearly, early, and in a manner that will come to their attention (e.g. a personally addressed letter). Delayed or obscure notices significantly affect a member’s ability to make an informed decision about whether to exercise their right to exit the fund.

Under the Corporations Act 2001, super fund trustees have an ongoing obligation to disclose ‘material changes’ and ‘significant events’ to members. For example, trustees must notify members when they decide to:

• transfer their benefits into a successor fund;

• transfer the benefits of a particular class of fund members covered by the fund’s eligible rollover fund (ERF) policy to an ERF;

• change the class of members affected by the fund’s ERF policy;

• seek approval from APRA to transfer benefits under Part 18 of the Superannuation Industry (Supervision) Act 1993; or

• transfer members’ benefits from one category to another within a fund (e.g. because the member was in an employer-sponsored category, has left that employer, and must be moved to another category that is not linked to any particular employer).

ASIC says trustees must notify members of these and other decisions that involve material changes or significant events either before, or as soon as practicable (but no more than three months) after, their decision. In ASIC’s view, ‘as soon as practicable’ means that trustees must be able to demonstrate that they have given the notice at the first reasonable opportunity.

More information can be found in ASIC information release IR 06–26, released 17 July 2006.

This article appeared in Thomson’s Superannuation & Financial Service Bulletin (31 July 2006). Superannuation & Financial Service Bulletin is a comprehensive and informative superannuation news service. Special coverage is given to newly introduced legislation with contributions from business-focused experts.

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