In the event of voluntary bankruptcy and SMSF, I presume the director of the corporate trustee must remove themself, and therefore fund must close.
What happens to the assets in the fund?
Are the funds exposed to the bankruptcy trustee if already bankrupt, and the fund must then close?
If the funds remain in the SMSF (cash), can I close the fund and remove the cash without it being taken by the trustee, or must the money stay in a super fund? I am 62 years old and can retire and take the money out.
Answer
You are right that a disqualified person cannot act as a trustee of a self-managed superannuation fund (SMSF) when they become bankrupt.
This applies whether they are the director of a trustee company or act as an individual trustee.
The ATO must be informed immediately, and alternative arrangements must be made within the six-month period of grace.
Where the funds held in the SMSF are liquid, such as shares or cash at the bank, this usually does not cause a problem as the funds can be rolled over into a superannuation fund that is not a SMSF.
However, there may be problems when the assets are not liquid. Such as real property where there may be delays in selling or when the Trustees simply do not wish to sell as they believe the property is a good investment.
In such cases, they can appoint a small APRA fund to act as the fund trustee.
A small APRA fund allows the members to run the investment along similar lines to a SMSF, but a specialist company regulated by APRA performs the trustee role. There are costs associated with this which need to be considered when deciding what course of action to take.
If your client is an undischarged bankrupt, it may be that the funds stay in superannuation.
If the funds pass to the individual, the trustee, in some limited circumstances, may access them in bankruptcy, resulting in further financial loss.
Exercise extreme caution taking professional advice.