When a Trustee becomes insolvent or is declared bankrupt, they are classified as a disqualified person. A disqualified person should not be a Trustee of a Superannuation Fund or a Director of a Corporate Trustee. Under Section 126K of the Superannuation Industry Supervision Act 1993 (SIS Act), penalties can apply, if a person continues to act as a Trustee of the SMSF after knowing they are disqualified.
The steps to take when you become a disqualified person are as follows:
When you become a disqualified person, you need to remove yourself as a Trustee immediately and you will have six months to restructure the Fund. Once the Trustees in the Fund are disqualified, they will not be able to appoint a Power of Attorney (POA) to continue managing the Fund as the Fund no longer meets the definition of an SMSF (s17a (10)).
1. Removing yourself as a Trustee immediately
If you become a disqualified person you need to:
- Remove yourself immediately as Trustee and inform the ATO in writing.
- Transfer your superannuation interest out of the SMSF.
A disqualified person should cease being a Trustee as it is an offence if they continue to act on behalf of the SMSF. Please see here for the recent 2022-23 update on the surge of Trustee disqualifications. Remember to contact us as soon as possible when you become a disqualified person. We can then advise the ATO to remove you as a Trustee. Alternatively, you must complete the Change of details for superannuation entities (NAT 3036) form 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).
For more information, please see the ATO Commissioner Practice Statement on disqualification of the Trustees (PS LA 2006/17).
2. Restructuring your SMSF
If the Fund no longer meets the definition of an SMSF, it may need to be restructured or wound up.
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:
- Roll over your benefits to another complying Super Fund
- Appoint an approved Trustee who has a license from APRA (that is, become a small APRA fund)
- Wind up the Fund by rolling all Members’ benefits out of the Fund.
If a Trustee in the Fund is declared bankrupt, the Fund may no longer meet the definition of an SMSF. For more information on the definition of an SMSF, please see the SIS Act Section 17A below:
3. Apply to the Federal Court for leave to continue to act as Director of the Corporate Trustee
There has been a recent court case, Macalister, that illustrates this option as a possibility for some.
Mr and Mrs Macalister had an insurance agency business in the UK. In 2007, they set up an SMSF with a Corporate Trustee, Kircam Pty Ltd. In 2014, they sold shares of their insurance business. In 2016, the business purchaser sued the Macalisters regarding a breach of warranties under the share purchase agreement for an amount of £2,386,247.50.
The Macalisters were unable to pay off the debt. Thus, on 21 December 2020, they were declared bankrupt.
As the insurance business had nothing to do with the SMSF and the company was created for the sole purpose of acting as Trustee of the SMSF, the court granted the leave.
For more information on this 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.
