Section 206B of the Corporations Act 2001 (Cth) (“Corporations Act”) provides that a person is automatically disqualified form managing a corporation when certain events occur. One event that results in the disqualification from managing a corporation is bankruptcy. Section 206B(3) of the Corporations Act outlines that a person is disqualified from managing a corporation if the person is an undischarged bankrupt under the law of Australia, its external territories or another country.
When a person who has a self-managed superannuation fund is declared bankrupt that person is then placed in a position of not being able to manage the fund.
Section 17A of the Superannuation Industry (Supervision) Act 1993 (Cth) states that if a self-managed superannuation fund has a corporate trustee then each member of the fund must also be a director of the body corporate. In addition, each director of the corporate trustee must be a member of the self-managed superannuation fund.
When a person becomes bankrupt and also has a self-managed superannuation fund the result is that the superannuation fund becomes non-compliant. This can result in adverse tax consequences for the fund and its members.
Fortunately, under section 206G of the Corporations Act a person who is disqualified from managing a corporation can apply to the Supreme Court for leave to manage a corporation. The person seeking permission to manage a corporation bears the onus of establishing that the prohibition should not apply to them. Some of the things that the court can consider in this type of application include:
- the protection of the public and any shareholders;
- nature of the disqualification;
- applicant’s character and conduct since disqualification;
- structure of the company and nature of any business undertaken by company;
- the potential for repetition of contraventions;
- the risk to the survival of the company; and
- the effect on any third parties of the company unable to benefit from the applicant’s knowledge.
In relation to bankruptcy specifically, the circumstances surrounding the debts which gave rise to the bankruptcy will be relevant. Hardship alone is not likely to be persuasive with a Court as a disqualification order contemplates hardship.
The Australian Securities and Investment Commission (“ASIC”) play an important role in the application process. Under the legislation, the applicant must notify ASIC at least 21 days prior to making their application. ASIC also have the power to make recommendations to the court in relation to the application. These recommendations can include conditions that they think should be imposed on an applicant if the application were granted. For example, ASIC could suggest that a condition be imposed to limit the type of activity the director can be involved in as a director of the corporate trustee of a self-managed superannuation fund.
If you would like advice in relation to self-managed superannuation funds and seeking leave to manage a corporation, please contact Butcher Paull & Calder to discuss your situation.
Please note that any information included in this article is general information only and does not constitute legal advice. Please contact us to discuss your particular circumstances and the options available to you.