When a Trustee becomes insolvent or is declared bankrupt, they are classified as a disqualified person. A disqualified person cannot act as a Trustee or a Director of the Corporate Trustee of an SMSF. When an SMSF Trustee becomes bankrupt, prompt action needs to be taken and the Trustee is faced with three options:
1. Removing yourself as a trustee
If you become a disqualified person you need to:
When you have resigned as a trustee, you must complete the Change of details for superannuation entities (NAT 3036) form (HERE) and send it to The ATO within 28 days of the change.
If you are a director of a corporate trustee, you may also have obligations to inform the Australian Securities & Investments Commission (ASIC).
If by doing so the fund no longer meets the definition of an SMSF, it may need to be restructured to meet the requirements of a regulated super fund or be wound up.
2. Structuring your SMSF
Effectively, your SMSF has six months after you resign as a trustee to restructure itself so that it continues to meet the definition of an SMSF – generally, this will mean rolling your super interest out of the fund.
The other trustees or directors can:
3. Seeking leave of the court to still be allowed to run the SMSF
A recent case Macalister, in the matter of an application by Macalister  FCA 1455 (Macalister), illustrates that an SMSF Member who is insolvent is allowed to apply to the Federal Court for leave to continue to act as the Director of the Corporate Trustee of the SMSF.
In the recent case, Mr and Mrs Macalister set up an SMSF with a Corporate Trustee, Kircam Pty Ltd in 2007. Kircam Pty Ltd is a special purpose company and does not carry on any activity other than to act as SMSF Trustee. Besides, they have an insurance agency business in the UK. In 2020, the Macalisters were unable to satisfy the debt for the insurance business. Accordingly, on 21 December 2020 they were subsequently made bankrupt pursuant to sequestration orders made by a registrar of the Federal Court.
The Macalisters sought court orders permitting them to continue to act as directors of Kircam Pty Ltd to manage the SMSF.
The court granted the application based on the significant facts below:
For more details about the Macalister case, please see here.
To check Trustee bankruptcy status can be done online and cost around $46.
For details on Trustee roles and responsibilities, please see the ATO guidance on our website.