Insolvent and Bankrupt Trustees

When a Trustee becomes insolvent or is declared bankrupt, they are classified as a disqualified person. A disqualified person should not be a Trustee of a Superannuation Fund or a Director of a Corporate Trustee. Under Section 126K of the Superannuation Industry Supervision Act 1993 (SIS Act), penalties can apply, if a person continues to act as a Trustee of the SMSF after knowing they are disqualified.

The steps to take when you become a disqualified person are as follows:

When you become a disqualified person, you need to remove yourself as a Trustee immediately and you will have six months to restructure the Fund. Once the Trustees in the Fund is disqualified, they will not be able to appoint a Power of Attorney (POA) to continue managing the Fund as the Fund no longer meets the definition of an SMSF.

1. Removing yourself as a Trustee immediately

If you become a disqualified person you need to:

  • Remove yourself immediately as Trustee and inform the ATO in writing.
  • Transfer your superannuation interest out of the SMSF.

Please contact us as soon as possible when you become a disqualified person. We can then advise the ATO to remove you as a Trustee. Alternatively, you must complete the Change of details for superannuation entities (NAT 3036) form and send it to The ATO within 28 days of the change.

If you are a Director of a Corporate Trustee, you may also have obligations to inform the Australian Securities & Investments Commission (ASIC).

For more information, please see the ATO Commissioner Practice Statement on disqualification of the Trustees (PS LA 2006/17).

2. Restructuring your SMSF

If the Fund no longer meets the definition of an SMSF, it may need to be restructured or wound up.

Effectively, your SMSF has six months after you resign as a Trustee to restructure itself so that it continues to meet the definition of an SMSF – generally, this will mean rolling your super interest out of the fund. The other Trustees or Directors can:

  • Roll over your benefits to another complying Super Fund
  • Appoint an approved Trustee who has a license from APRA (that is, become a small APRA fund)
  • Wind up the Fund by rolling all Members’ benefits out of the Fund.

If a Trustee in the Fund is declared bankrupt, the Fund may no longer meet the definition of an SMSF. For more information on the definition of an SMSF, please see the SIS Act Section 17A below:

To check Trustee bankruptcy status can be done online and cost around $46.

For details on Trustee roles and responsibilities, please see the ATO guidance on our website.

  • mp

    hello, i would like to ask a couple of initial questions to see whether or not i can move forward and take control of my own super investment strategy. Firstly, my wife and I have recently become bankrupt – so not a great start! I understand that we cannot be a trustee until discharged but I can nominate somebody else as long as they are an adult, is that correct? And secondly, we are interested in 2 possible areas of investment at this point – 1. overseas property investment (in the UK) and 2. loans issued by a smsf. i would appreciate any initial assessment you can provide. thanks in advance, martin.

    • Hein Preller

      mp,

      Thanks for posting the comment. If there’s a silver lining in this situation its that your super is protected from creditors in the case of bankruptcy.

      The bad news, however, is that an undischarged bankrupt cannot start a new SMSF. There is a section in the SISA (S17A(10) ) noting that a POA is invalid for an undischarged bankrupt.

      I guess this makes the second part of your question superfluous as you are bound to the world of retail super for the time being.

  • Nathan Castro

    Hi there,

    I might soon be declared bankrupt, I already have an SMSF with my wife and I as individual trustees. Can I still remain a member and how can I go about making it compliant? Can my wife still make decisions for the fund in regards to investments?

    • superannuationwarehouse

      Nathan,
      Once you become bankrupt, you have to exit the SMSF. If there’s a Corporate Trustee, you have to resign as a Director.
      This has to be done on a priority basis after the bankruptcy date and should not take longer than 6 moths.
      The potential issue is if there’s illiquid assets. You have to sell all assets and roll your funds to a retail or industry fund.
      Not much room for other alternatives. There is an option to convert the SMSF to a small APRA fund, but this is an expensive option and therefore usually not a viable option.

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Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.

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