Bankruptcy Developments

21 April 2010

On 27 July 2006 the Attorney General announced that the Bankruptcy Act 1966 will be amended to allow Trustees in Bankruptcy to recover superannuation contributions made prior to bankruptcy with the intention to defeat creditors. This will mean that payments to superannuation funds to defeat creditors will be recoverable in the same way as payments or transfers to defeat creditors currently are.

These amendments are aimed to rectify the problems which arose in the High Court's decision in Cook v Benson. The effect of the decision in Cook v Benson was that Trustees in Bankruptcy are unable to recover superannuation contributions prior to bankruptcy pursuant to s116 (2) (d) of the Bankruptcy Act.

Whether contributions were made to 'defeat creditors' will be established by the courts considering the bankrupt's history of superannuation contributions and whether they were made 'out of character'.

While genuine contributions to superannuation will be protected from recovery, the amendments will prevent dishonest debtors from transferring assets into superannuation before bankruptcy.

The amendments apply to superannuation contributions made after the 27 July 2006 and legislation will be drafted as soon as practicable.

Summary of Effect of Amendments:

Where in an attempt to defeat creditors, a bankrupt makes contributions to the bankrupt's superannuation plan or to a third party's, a Trustee in Bankruptcy will be able to recover the value of those contributions.

Where a person other than the bankrupt makes contributions for the benefit of the bankrupt, and the bankrupt's main purpose was to defeat creditors, a Trustee in Bankruptcy will be able to recover these contributions.

The superannuation fund will not have to repay fees, charges and taxes associated with the contributions.

The Official Receiver will have the power to issue a notice to the superannuation fund holding the contributions. This will have the effect of freezing the funds to prevent the bankrupt from moving these funds into another fund.

Meerkin and Apel Lawyers have experts in this field including Hugh Maclaren who is an accredited commercial litigation specialist and has many years experience in the area of insolvency.