Transfer of funds from the pension before bankruptcy – insolvency/bankruptcy


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A person with a substantial personal guarantee debt to several now-failing affiliates came to Worrells to file for bankruptcy. The debt was owed to one of the big four banks and they had already realized something worthwhile. Based on the information they provided, there were no tangible assets available for exploitation and no income contributions were required due to current unemployment Bankruptcy Act 1966.

From the information provided upon our appointment as liquidator, it seemed unlikely that any repayment to creditors would occur. Managing bankruptcy seemed easy enough until it wasn’t.

Our investigation found that the debtor transferred $150,000 from its regulated retirement fund to its self-managed retirement fund eight months before filing for bankruptcy. This transaction alone would not be a problem provided the self-managed fund was regulated, the problem arose when the debtor then transferred those monies from the self-managed fund to a friend for “safekeeping”.

Pursuant to Section 116(2)(d)(iii) of the Bankruptcy Act, assets divisible among a bankrupt’s creditors do not extend to the assets of a regulated retirement fund. However, insolvency practitioners have limited powers to recover payments to a pension fund where it can be shown that those payments were intended to prevent creditors from accessing those funds.

The receiver explained to us that at the time of the transfer, the bank was taking possession of its assets under the terms of the personal guarantee agreement and did not know if its retirement fund was protected in this scenario. So they took matters into their own hands and transferred the funds earmarked for retirement to their friend’s account as a safeguard.

The problem here is that by the time the bankruptcy was declared the funds were no longer held in a regulated retirement fund, they were renamed “funds held in trust” when transferred to the debtor’s friend, an asset that is transferred and is accountable to a trustee Disposal. Following an assertive letter from our attorney, the debtor’s friend paid the $150,000 to the bankruptcy estate – after an understandably considerate suggestion that they simply transfer the money back to their friend’s pension fund to try to reverse the damage done.

So how could this have been avoided?

With good advice and at a fraction of the cost, this bankrupt could have avoided losing his pension. If they had come to Worrells when things were beginning to unravel with the companies bound by their personal guarantees, we could have explained how bankruptcy works and how assets/divisible property are treated in a bankruptcy scenario. We do this every day for free and without expectation. An accountant or attorney could also provide this advice and clarity. We’re really sad to see the cost of not getting advice that impacts someone so much.

On the subject of matching items:

Income contributions in bankruptcy

bankruptcy and retirement

The content of this article is intended to provide a general guide to the topic. Professional advice should be sought in relation to your specific circumstances.

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