Careful: Monies transferred from your Superannuation fund may become available to your creditors if you are made a Bankrupt

Mrs Smith argued that there was a constructive trust in her favour in that she had an equitable entitlement to an increased proportion of the proceeds of sale, and, to the extent that her receipt of the proceeds reflected a greater beneficial interest in the properties, she was not receiving a transfer of property from Mr Smith to enliven provisions of the Bankruptcy Act.

Authorities supporting a constructive trust have involved contributions by individuals towards the purchase price or mortgage repayments directly attributable to real property. It was in such circumstances that equity was able to intervene to recognise the existence of an interest not otherwise identified on the relevant title.

Ultimately, the court was not satisfied that any of the payments made by Mrs Smith gave rise to an interest which she could assert in equity to increase her entitlement to the proceeds of sale of the properties beyond 50%.

Loan Agreement

The second question was whether the loan from Faloda (under the control of Mr Smith) to Mrs Smith was a sham intended to create the appearance of a debt due by Mrs Smith, when really, the monies had been disbursed to Mr Smith and re-routed to Mrs Smith.

The Court considered the starting point that Faloda and Mrs Smith formally entered into the Loan Agreement, which required Mrs Smith to repay monies to Faloda on demand by Faloda. It noted that the Court must act with care and caution before finding that what appears to be a legally enforceable contract did not take effect according to its terms, on the basis that it was a mere façade concealing another, “real” transaction.

It was held that the Loan Agreement was not a sham. The sum of $250,000.00 advanced to Mrs Smith by Faloda was not available to creditors of Mr Smith under the Bankruptcy Act.

Superannuation Transactions

The final question was whether it was probable that the monies the subject of the Superannuation Transactions either would have become part of Mr Smith’s estate or would have been available to his creditors if those monies had not been transferred to Mrs Smith.

The Court found that once Mr Smith removed the monies from his superannuation accounts to make the Superannuation Transactions, those monies ceased to be monies the subject of an interest in a regulated superannuation fund for the purposes of the Bankruptcy Act. Therefore, once removed from Mr Smith’s superannuation account, those monies would probably have been available to creditors.

The protections under the Bankruptcy Act were not enlivened to protect the monies that were the subject of the Superannuation Transactions from the creditors of Mr Smith’s estate. There was no evidence of any mutual intention that the monies withdrawn were to be used exclusively for a specific purpose, such that if the purpose failed, the money would be repaid to Mr Smith’s superannuation accounts. Therefore, no Quistclose trust existed.

It was ultimately held that the monies were or would probably have been available to Mr Smith’s creditors. The transfers of those monies were therefore void against the Trustee under the Bankruptcy Act, and those monies were available to creditors.

OVERVIEW

If you find yourself in a delicate financial position, it is unwise to transfer monies from your superannuation accounts, as the monies the subject of such transactions may lose the protection otherwise available under the Bankruptcy Act.

For more specific information on any of the material contained in this article please contact Vas Marinos on +61 8 8210 1283 or vmarinos@normans.com.au