Superannuation Funds Used For Asset Protection

November 2003

A recent decision by the High Court in Cook v Benson [2003] HCA 36 could help debtors seeking to use superannuation funds for asset protection.

The case of Cook v Benson concerned the ability of Mr Cook (the bankruptcy trustee) to claw back money paid into three superannuation funds at the direction of Mr Benson (the bankrupt) prior to Mr Benson becoming bankrupt. As Mr Benson was below the retirement age, he had obtained financial advice and rolled-over $80,000 into other superannuation funds. Prior to the “roll-over”, a creditor had obtained judgement against Mr Benson for approximately $35,000 and made demands for payment of the judgement debt and obtained a sequestration order.

Usually, Section 120 of the Bankruptcy Act 1966 (Cth) empowers a bankruptcy trustee to claw back any disposition of property by a bankrupt within two years before the commencement of the bankruptcy subject to an exception that “settlements” made in favour of a purchaser in “good faith” and for “valuation consideration” cannot be clawed back. The High Court held that superannuation contributions made in this case before the person became a bankrupt were not available for claw-back by the bankruptcy trustee and therefore not recoverable by the bankrupt’s creditors.

The High Court considered the issue of whether the rollover payments to the superannuation funds were made in “good faith” and for “valuable consideration”, and held that the payments were made pursuant to arm’s-length commercial transactions and, in return, the superannuation funds provided valuable consideration by undertaking to provide Mr Benson with rights and benefits to which he would become entitled under the rules of the superannuation funds.

Baldwins can advise on all aspects of asset protection.

For further information, contact Joe Lederman at BALDWINS, Australian Lawyers & Consultants.

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