The Federal Court has on Fri 18.5.2012, ordered the trustee of a self-managed superannuation fund (SMSF) to pay compound interest for breaching an enforceable undertaking under s 262A of the SIS Act.
The corporate trustee of the SMSF (Interhealth Energies Pty Ltd) had given an enforceable undertaking to the Commissioner under s 262A of the SIS Act to collect unpaid distributions from its investment in a unit trust and pay the bankrupt member his full superannuation entitlement. At first instance, in FCT v Interhealth Energies Pty Ltd [2012] FCA 516, the Federal Court held that the trustee had failed to comply with the undertakings and ordered the trustee to pay the bankrupt member his residual interest in the SMSF of $249,457. Following that decision, the Commissioner applied for an award of compound interest for the pre-judgment period.
The Federal Court ordered the trustee of the SMSF to pay compensatory compound interest at a rate of 7% pa (with yearly rests) on the unpaid retirement benefit.
The Court ruled that its power to award compound interest stems from s 262A of the SIS Act.
The Court also appointed a receiver for the purposes of realising the assets of the SMSF so as to pay the member his retirement benefit (with interest).
Importantly, the Court ordered that the SMSF will be deemed to be a “complying superannuation fund” for the purposes of the SIS Act. Furthermore, the Court declared that the trustee of the SMSF is not entitled to any indemnity from the assets of the fund.
However, the Court declined to make an order on the question whether the retirement benefit should be paid to the member or his trustee in bankruptcy. Rather, the Court granted a stay on this issue pending the outcome of the appeal to the Full Court.
(FCT v Interhealth Energies Pty Ltd as Trustee of the Interhealth Superannuation Fund (No 2) [2012] FCA 516, Federal Court, Logan J, 18 May 2012.)
[LTN 95, 18/5]
262A of the SIS Act
262A Acceptance and enforcement of undertakings
(1) The Regulator may accept a written undertaking given by a person in connection with a matter in relation to which the Regulator has a function or power under this Act.
(2) The person may withdraw or vary the undertaking at any time, but only with the Regulator‘s consent.
(3) If the Regulator considers that the person who gave the undertaking has breached any of its terms, the Regulator may apply to the Court for an order under subsection (4).
(4) If the Court is satisfied that the person has breached a term of the undertaking, the Court may make all or any of the following orders:
(a) an order directing the person to comply with that term of the undertaking;
(b) an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach;
(c) any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach;
(d) any other order that the Court considers appropriate.