What happens when an SMSF trustee company is de-registered by ASIC?

The following article was published by SuperCentral 17/10/2017.  The original can be found here: https://www.supercentral.com.au/smsf-news/827/de-registered-smsf-trustee-new-solution

 

De-registered SMSF Trustee: new solution

17/10/2017

When a corporate trustee is de-registered – the corporate entity ceases to exist.  However, this does not mean that the trust is also “de-registered” or ceases to exist.  The trust continues and any assets held by the de-registered company as trust assets are automatically vested in the Commonwealth with ASIC acting as the agent of the Commonwealth in dealing the trust assets.  This automatic vesting occurs by force of the Corporations Act. 

The same principles apply where the de-registered company was acting as the trustee of a self managed superannuation fund.  The SMSF continues despite the absence of a trustee.  The assets of the SMSF are vested in the Commonwealth and ASIC is empowered to act as agent for the Commonwealth in dealing with the fund assets.

If a successor trustee cannot be appointed (for example, the trust deed of the SMSF has been lost and therefore the procedure for appointing a replacement trustee is not known or trust deed only confers power to appoint a replacement trustee on the current trustee – which is now de-registered) and the Commonwealth (while having a statutory power to appoint a replacement trustee) declines to exercise the power, it seemed there was only one solution – to have the de-registered company reinstated by Court Order.  

Now a recent case has shown another solution.  In Re Inavas Pty Limited – a decision of the Supreme Court of NSW – reported as [2017] NSWSC 1312 – the company was the trustee of a self managed superannuation fund.  The company was de-registered in 1996.  One asset of the superannuation fund was life insurance policy which was taken out in 1987 and which matured in 2015.  The proceeds of the policy were paid by the insurer to ASIC (as agent of the Commonwealth) as the Commonwealth was the legal owner of the policy.

A member of the fund (in fact the life insured under the policy) sought to have the policy proceeds paid to him.  The Court declined to make such an order.  However, the Court was prepared to, and did make, a vesting order whereby the policy proceeds were vested in the trustee of a master superannuation trust in relation to which the member had recently joined.  The vesting order by-passed the need for a reinstatement of the de-registered company (which would have involved paying ASIC for unpaid review fees from 1996 until 2017).

The Court was prepared to assume (given the non-adversarial nature of the proceedings and the relatively modest amount involved – the policy proceeds were under $30,000 and taking notice of the usual provisions of superannuation funds) that the now lost trust deed of the superannuation fund would have contained a provision permitting the rollover of a member’s super benefit to another regulated superannuation fund and that the policy proceeds constituted the member’s benefit (or part of the benefit) given the member was the life insured.  

The Court made the point that as the policy was an asset of the fund, the policy proceeds could not simply be paid to the member (even if the member were the life insured).  The policy proceeds had to be paid to a superannuation fund and could only be paid to the member once the member satisfied a condition of release – such as being retired or being aged 65 or more.

The member became a member of a another superannuation fund – being a master superannuation fund and the policy proceeds were then paid to the trustee of the master superannuation fund pursuant to the vesting order.  The vesting order was that the policy proceeds be paid to the trustee of the master superannuation fund.  Consequently, when the  member satisfies a relevant release condition – such as attaining age 65 or being retired for superannuation purposes – the trustee of the master superannuation fund can then pay the policy proceeds to the member.

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