Background
Ross Alexander Wolbers and his wife were the only members and co-trustees of the Raw Superannuation Fund, a self-managed superannuation fund holding cash and shares in Australian listed companies. The Fund conducted no business, employed no staff, borrowed no money and had no creditors.
Wolbers became bankrupt after his construction company entered voluntary liquidation and liabilities under his personal guarantees were enforced. Because an undischarged bankrupt is ordinarily a disqualified person under the Superannuation Industry (Supervision) Act 1993 (Cth), he applied under s 126J(1)(b) for an order permitting him to remain a co-trustee. His wife supported the application; the Official Trustee did not take a position, and the Commissioner of Taxation did not respond.
The Court considered potentially adverse matters, including Wolbers’ execution of Fund audit documents after his bankruptcy, a liquidator’s untested allegation of insolvent trading by his former company, and possible outstanding company tax lodgments. No proceedings had been commenced over the alleged insolvent trading, and the evidence did not establish deliberate, dishonest or fraudulent conduct.
The Court’s Holding
Meagher J granted the application. The Court ordered that, until Wolbers is discharged from bankruptcy, he may act as co-trustee of the Raw Superannuation Fund and do things reasonably incidental to that role. Under s 126J(1)(b), he was declared not to be a disqualified person in relation to that Fund.
The Court found that the bankruptcy arose from ordinary business factors rather than dishonesty, fraud, misconduct or mismanagement. Wolbers had acted responsibly by obtaining professional advice, placing his company into voluntary liquidation, negotiating with creditors and cooperating with the bankruptcy trustee. His post-bankruptcy signing of audit documents was an isolated incident and did not amount to deliberate or repeated delinquency sufficient to outweigh the factors supporting relief.
Public-protection concerns did not require continued disqualification in relation to this Fund. The only persons with a financial interest were Wolbers, his wife and, on their deaths, their dependants; the Fund’s activities and risk profile were limited. Refusing relief would also likely require transferring the assets to an industry or retail fund or engaging professional assistance, creating additional expense.
Key Takeaways
- Bankruptcy automatically disqualifies an individual from acting as an SMSF trustee, but the Federal Court has a broad discretion under s 126J(1)(b) to grant fund-specific relief.
- The applicant must justify an exception to the protective statutory policy, with particular attention to public and third-party interests, the causes of the bankruptcy, character, compliance and the risk of future misconduct.
- Isolated post-disqualification conduct and untested allegations may carry limited weight where the evidence otherwise shows good faith, cooperation and a low-risk fund structure.
Why It Matters
The decision shows that bankruptcy does not invariably require an SMSF member to surrender a trustee role. Relief may be available where the bankruptcy was not associated with dishonesty or improper conduct and the fund presents little risk to creditors, members or the public.
It also illustrates the evidence needed for a successful application: a candid account of the bankruptcy, proof of cooperation and responsible conduct, the support and interests of other fund members, and detailed evidence about the fund’s operations, liabilities and alternatives if relief is refused.