Impacts of voidable transfers into Superannuation – non-divisible but still can be recoverable in bankruptcy

Sandy Kiriama, Senior Accountant

The available funds of an undischarged bankrupt that are in a regulated superannuation fund as at the date of bankruptcy, are generally protected in bankruptcy and not considered to be divisible property recoverable by the Trustee pursuant to Section 116 of the Bankruptcy Act 1966 (“the Act”).  

Even with the protections offered to the Debtor’s superannuation funds by virtue of Section 116 of the Act, it is important for a Trustee in Bankruptcy to investigate the Debtor’s behaviour with respect to the contributions made to their complying superfund in the lead up to their bankruptcy. It is not rare for a bankrupt to have minimal or no assets, however at the same time, have a significant superannuation balance.

In the event that the Trustee’s investigations can show that prior to bankruptcy the Debtor’s superannuation fund received contributions that were irregular or uncommon, then there may be a transaction and/or transactions that would be deemed voidable and therefore recoverable by the Trustee. 

If the Superannuation contributions made by an employer do not exceed the Maximum Superannuation Contribution Base (“MSCB”), then its likely that the contributions made are not voidable.  Each financial year, The MSCB sets the limit on the superannuation contributions that an employer must make into an employee’s nominated superannuation fund. If Additional payment contributions are regularly found to be in excess of the MSCB, investigations can be undertaken to determine whether these additional contributions are voidable.

The avenues for recovery for such transactions are made possible by Section 128B and Section 128C of the Act. Section 128B of the Act enables a bankruptcy Trustee to recover contributions made by the bankrupt themselves, whilst Section 128C of the Act enables the Trustee to recover contributions made by third parties for the benefit of the bankrupt.  It is important to note that the Trustee must show that the intent of the transfers was for the purpose of defeating creditors, that is if the transfers not been otherwise made, then the assets would have likely been recovered by the Estate.

Once the Trustee successfully has identified such a claim, Section 128E- 128K provides the avenues for the Trustee to request a debtor’s superannuation account to be frozen for up to 180 days whilst commencing recovery actions.  The Trustee can commence recovery actions of the voidable transfers pursuant to Section 139ZQ of the Act which is via the Official Receiver or Section 139ZU of the Act which is via an application made to through the Courts.