Are superannuation contributions protected in bankruptcy?

March, 2016

By Harry Kay, Senior Associate.

When a person becomes bankrupt, any property of the bankrupt automatically vests in the trustee in bankruptcy (appointed to administer the estate). That property includes all property owned at the time of bankruptcy or acquired during bankruptcy. Importantly, however, a bankrupt’s interest in a regulated superannuation fund is classified as non-divisible property, and will not, in ordinary circumstances, vest in the trustee.

In this blog post, Harry Kay, Senior Associate at Mills Oakley, discusses the circumstances in which superannuation may be affected.

Part of the trustee’s role once appointed is to investigate pre-bankruptcy transfers or transactions where the trustee believes that the transaction had the effect of improperly dissipating or removing assets that would otherwise be available to creditors. The Bankruptcy Act 1966 (Cth) (the “Act”) will sometimes permit the voiding of any such transactions, and require the other party to a transaction to return the asset, or make a payment, to the trustee. Contributions by, or made on behalf of, a bankrupt to superannuation funds prior to the bankruptcy may fall into this category of transactions.

What a trustee in bankruptcy might investigate

It is sometimes the case that, when debtors face bankruptcy, they may look at ways of protecting or quarantining their assets, in an effort to avoid losing those assets to creditors. One way in which a debtor may attempt to protect assets is by making payments to their superannuation plan, as superannuation is generally exempt from the other divisible property of the bankrupt.

Transfers made by a debtor* are void if they were made to an eligible superannuation fund of the bankrupt, and the property transferred would have formed part of the bankrupt’s estate if the transfer had not been made, and the main purpose of the transaction was to keep the asset from being available to creditors.

Even circumstances where a transfer to a superannuation plan was not made by the debtor, but on the debtor’s behalf, may also be a transaction caught under the relevant provisions of the Act. This type of transaction may arise where a third party holds assets belonging to the debtor or owe money to the debtor, and pays that money into a superannuation fund on the debtor’s behalf.

Ordinarily, the type of transaction targeted by a trustee is a lump sum payment of a significant amount into the debtor’s superannuation fund in the period immediately preceding the date of bankruptcy.

The trustee will examine the debtor’s history of personal contributions to eligible superannuation funds, and will use that analysis to determine whether there was an intention to defeat creditor’s interests in any transaction.

The key determination will be whether the intention of the transfer was to keep the asset from creditors – it needs to be one of the main purposes of the transaction, and does not need to be the only purpose of the transaction.

Superannuation that is safe

Where a debtor has been making regular payments into a superannuation fund, those payments, even those up to the date of bankruptcy, may not be considered voidable, or with the intention of preventing creditor’s access to those funds.


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