The Federal Court has found a corporate trustee of an SMSF had breached an enforceable undertaking under the SIS Act and ordered it to pay amounts it found owing to a fund member.
The matter concerned a corporate trustee of an SMSF and an undertaking it took with the Commissioner under s 262A of the SIS Act that it would: (i) collect payments of unpaid distributions owed to the fund by a related unit trust (G trust) by 30 May 2008; (ii) pay to a bankrupt member (Mr W) his full superannuation entitlement by 30 May 2008; and (iii) provide evidence of the collection and payment to the Commissioner by 6 June 2008.
The background facts are complex, but relevantly, the undertaking followed the bankrupt member ceasing to be a director of the corporate trustee (in October 2004) although he remained a member of the fund, which had implications for the complying status of the fund. The Court noted the giving of an undertaking is relevant to the exercise of a Commissioner’s discretion under s 42A(5)(b) of the SIS Act to give a notice that a fund is a complying fund.
There were 2 members in the SMSF at all relevant times. The other member (Ms H) is also the remaining sole director of the corporate trustee. The Court heard the commercial and de facto relationships between Ms H and Mr W had “ceased some time ago”. The dispute between Ms H and Mr W (and others) essentially evolved from a series of events, which commenced in March 2004 concerning a trust property (land). The SMSF held all the units in G trust, G trust held 50% of the units in P trust, and P trust held the land.
In June 2008, a cheque from the corporate trustee was sent to Mr W for $42,824.15. The Commissioner was then advised by the corporate trustee that Mr W’s member benefits had been paid in full. However, the Commissioner queried whether the amount was a final payment and how the amount could be reconciled with the figures presented in the SMSF’s lodged returns. The Commissioner was not satisfied with the corporate trustee’s responses, which eventually resulted in the current proceedings.
Before the Court, the Commissioner alleged the undertaking had been breached and sought orders that the undertaking be enforced. The corporate trustee argued there had been no breach. The Federal Court held the corporate trustee had failed to collect the unpaid distributions. Consequently, the Court also held the corporate trustee had failed to comply with the payment and reporting obligations of the undertaking. In doing so, it made orders for the corporate trustee to pay Mr W the sum of $249,457.35 (representing what the Court considered to be Mr W’s residual interest in the fund as at 20 June 2008 less the cheque payment already made).
(FCT v Interhealth Energies Pty Ltd as Trustee of the Interhealth Superannuation Fund [2012] FCA 120, Federal Court, Logan J, 22 February 2012.)
[LTN 38, 27/2]