Proposed changes to Australian bankruptcy law may allow creditors to claw back superannuation contributions paid by a bankrupt fund member.
The proposed changes
The Australian Federal Government intends to amend the Bankruptcy Act 1966 Act so that a creditor can claw-back superannuation contributions made by a person for the purpose of defeating creditors’ claims if that person later becomes bankrupt. The change is the government’s response to the Cook vs. Benson High Court case.
The changes are yet to be finalised, but they will take effect on the 27th July 2007.
Currently, transfers of property by a person who later becomes bankrupt can be set aside if the transfer was not supported by valuable or sufficient consideration, or the transfer was made to prevent the property from being available to meet debts due to the bankrupt’s creditors.
The aim of these changes is to prevent people who later become bankrupt from defeating creditors’ claims by placing their assets, including cash, in the hands of third parties and out of creditors’ reach.
Under the new changes, the law will specifically provide that superannuation contributions can be ‘clawed back’ in the above circumstances; and the Courts will be permitted to take into account a bankrupt’s past history of superannuation contributions and whether the relevant contributions are ‘out of character’.
Summary
In future, it seems likely that persons who are insolvent wont be able to put their assets beyond the reach of creditors by making ‘out of the ordinary’ superannuation contributions. However, the primary consideration will remain whether the insolvent person’s objective was to defeat the claims of their potential creditors.
Always seek legal advice
The information in this article should be considered general in nature, and in no way interpreted as legal advice. You should always get your own independent legal, accounting and financial advice before making decisions about important financial, legal and legal matters.