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Members to be protected on distribution of superannuation fund assets

February 2003

A recent decision of the Supreme Court of Victoria has shed some light on how excess assets of a superannuation fund are to be distributed on dissolution of the fund. Justice Warren, in BHLSPF Pty Ltd (as trustee of the Brashs Pty Ltd Staff Provident Fund) v Brashs Pty Ltd & Ors [2001] VSC 512, has found that some amendments to the trust deed of a superannuation fund were invalid. The court found that some original clauses of the original trust deed were to be relied upon in place of a 1974 amendment to the deed.

The fund in question had no active members and had paid all member entitlements. The employer (Brashs Holdings Ltd) had ceased to carry on business. Yet the fund had surplus assets of AUD $3.659 million, payment of which was triggered by the fund’s dissolution.

The core issue was the protection of members. The original deed granted the trustee an absolute discretion to distribute unallocated parts of the fund amongst members in the event it dissolved (it also allowed the trustee to return refunds to the employer sponsors). The original deed also contained a clause stating that no alteration to the deed was to “detract from the benefits secured to a member”.

An amendment to the deed in 1974 did not grant the trustee any powers regarding the distribution of a surplus. The trustee of the fund argued that the trust deed could only be amended on the basis it did not deviate from the “benefits secured to a member” and that the 1974 amendments were ineffective to remove the provisions dealing with the return of the fund surplus.

The court considered other common law decisions and found that the 1974 amendments to the trust deed were ineffective to the extent they detracted from the benefits secured to members of the fund. Of note, the court found that “secured benefits” included future or contingent benefits, such as those which might arise on dissolution of the fund (citing Asea Brown Boveri Superannuation Fund No. 1 Pty Ltd v Asea Brown Boveri Pty Ltd & Ors [1999] 1 VR 144).

As a result of the court's findings, the trustees could rely on the original provisions of the trust deed and pay the surplus amounts only to members (and former members), or their dependants.

Australian superannuation legislation imposes numerous legislative requirements for winding up a superannuation fund, including specific requirements for returning a surplus to either members or an employer sponsor. However, this case is important in defining how and when benefits are “secured benefits for the members”.

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

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