The Australian Government has moved to avoid abuse of bankruptcy laws by making changes to prevent the manipulation of superannuation payments.
The changes, along with other recent bankruptcy reforms, demonstrate the Government's ongoing commitment to ensuring bankruptcy laws cannot be used inappropriately to avoid obligations to creditors.
Proposed amendments will address concerns about the powers of bankruptcy trustees to recover contributions which have been made to a superannuation fund by bankrupts, prior to bankruptcy.
Those concerns arose following the recent decision of the High Court in Cook v Benson. The effect of the decision is that bankruptcy trustees are powerless to recover these contributions. This allows debtors to convert assets into cash and place this money into superannuation, defeating creditors in the event of bankruptcy.
The changes will clarify the existing powers of bankruptcy trustees to set aside certain transactions.
In particular, the changes will include a specific clawback provision which will give bankruptcy trustees the power to recover 'excessive' personal contributions above an annual limit of $5,000 made by bankrupts from after-tax money, prior to bankruptcy.
Additional provisions will be made available to bankruptcy trustees to allow them to recover superannuation contributions which were made with an intention to defeat creditors.
These powers will provide trustees with the necessary capacity to ensure that a bankrupt's assets are available to satisfy creditors, while preserving reasonable, legitimate retirement savings.
The changes will also take into account the obligations already imposed on superannuation funds and seek to avoid any unnecessary obligations which may affect their efficient management. The changes will not affect employer-funded superannuation contributions or certain other legitimate member contributions.
Once enacted by parliament, the legislative changes would apply to all superannuation contributions as prescribed by the legislative amendments, which are made after the date of this announcement.
Insolvency Trustee Service Australia (ITSA), the Attorney-General's Department and the Treasury will consult with key stakeholders in the insolvency and superannuation industries as soon as possible to discuss how these changes will work in practice.