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Australian Lawyers and Consultants

Superannuation and Bankruptcy Change

February 2004

On 16 December 2003, Federal Attorney-General Mr Ruddock and Assistant Treasurer Senator Coonan jointly announced that changes to bankruptcy laws would be introduced to permit recovery by the bankruptcy trustee from part of the bankrupt’s superannuation. The changes, although not yet drafted, will apply retrospectively to superannuation contributions made on or after 17 December 2003.

Historically, the bankruptcy trustee was always prevented under the Life Insurance Act and Bankruptcy Act from accessing proceeds of life insurance. In the early 1980s this was extended also to protection of most superannuation assets from claims under the Bankruptcy Act. We anticipate the new laws with interest and with concerns. The new announcement may possibly herald wider changes in policy. We await to see the extent to which some types of superannuation savings for retirement may no longer survive the claims of the bankruptcy trustee of the bankrupt superannuated person.

On the other hand, the announcement may signal a limited response confined to the circumstances of the High Court decision in Cook v Benson (2003) 53 ATR 195, which we reported in the Baldwins Bulletin November 2003 issue. It was held that the rollover of superannuation entitlements, within 2 years prior to Mr Benson’s bankruptcy, was not a voidable “dispositions of property” against the trustee in bankruptcy.

The announcement stated that a new claw-back provision would allow the bankruptcy trustee to claim “excessive” personal contributions above an annual limit of $5,000 made by bankrupts from after-tax money. Also allowed for recovery will be contributions “which were made with the specific intention of shielding the funds from creditors”.

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

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