The Corporations Act mandates that a person is disqualified from managing corporations if they are undischarged bankrupt under Australian law, its external territories or another country. This is further elaborated in the Act that a person is disqualified from managing corporations if a person has executed a personal insolvency agreement under Part X of the Bankruptcy Act.
The situation can be a complex one when it involves a self-managed super fund (SMSF) and a person who is subject to a bankruptcy or personal insolvency agreement. According to the Superannuation Industry (Supervision) Act (SIS Act), every fund member must be listed as the director of the corporate entity if the trustee of the SMSF is a corporate trustee. This may not be an issue if the SMSF’s only asset is cash because cash can be transferred easily into a public superannuation fund.
However, it can be problematic if the SMSF’s only asset is real property given the value of the real property asset is only realisable at the point of sale of the real property. In other words, the value of the real property asset is not immediately transferrable into a public superannuation fund at the time of disqualification and the disqualified director would have to stay on the board to facilitate the sale of the real property asset. This is an apparent breach of the Corporations Act as a result of compliance with the requirement under SIS Act.
Under limited circumstances, Section 206G of the Corporations Act provides that a person who is disqualified from managing corporations may apply to the Court for leave to act as a director of a corporation. This section of the Act is further demonstrated in a recent case GRD v BJD (2018) WASC 374 where the Supreme Court of Western Australia granted leave to a disqualified director of a SMSF allowing him to act as a director of the corporate trustee for the SMSF in compliance with the requirement under SIS Act.
For further information with respect to SMSF and directorship in a corporate entity, please contact our lawyers and accountants by clicking here to submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.