Disqualified persons – not just when starting an SMSF

25/11/2013 9:32AM

Disqualified persons – not just when starting an SMSF

With a few exceptions (e.g. under an EPoA or minors) all members must be trustees, so it is vital  to ensure all members remain eligible to be a trustee, especially after they have established their SMSF.

Because of this it is important to periodically check if all members continue to be eligible and it is a good idea for Financial Advisers when taking on a new client that has an existing SMSF, to check if none of the members is a disqualified person.

A disqualified person may not act as:

• A trustee of any type of superannuation fund, or
• As a responsible officer of a body corporate that is a trustee of any type of superannuation fund.

A corporate trustee is not permitted to act as a trustee if:

• The company knows or has reasonable grounds to suspect that a responsible officer of that company is a disqualified person (a responsible officer includes a director, secretary or executive officer)
• A receiver, administrator, official manager or provisional liquidator has been appointed to the company; or
• Action has commenced to wind up the company

So what is a disqualified person? If any of the following conditions apply they will be disqualified:

• Have ever been convicted of an offence involving dishonesty
• Have ever been subject to a civil penalty order
• Are insolvent under administration
• Are an un-discharged bankrupt, or
• Have been disqualified by the regulator

Disqualification by the regulator

If the regulator (ATO) considers an individual is not a “fit and proper’ person, then they may disqualify the individual. In reaching such a decision they take into account the nature and number of super rules that have breached and also consider the individuals honesty, knowledge and ability.

Removing yourself as a trustee

If an individual becomes a disqualified person, they must immediately:

• Notify the ATO of their disqualification (unless it is the ATO that disqualified the person)
• Cease being or acting as a trustee.

If the individual is a director of a corporate trustee, they may also have obligations to inform the ASIC, which is the regulator for the company.

If the individual continues to act as a trustee once becoming a disqualified person, then they may be prosecuted, leading to imprisonment and/or significant fines. The SMSF can also be made non complying.

The other trustees of the SMSF must also ensure that an individual does not act as a trustee, if they know the person is a disqualified person.

Restructuring the SMSF

Effectively the SMSF has six months after the person resigns as a trustee to restructure, so that it can continue to meet the definition of an SMSF.

The remaining (and new) trustees can:

• Roll over the benefits of the disqualified person to another complying super fund
• Appoint an approved trustee. This is an APRA regulated trustee and the SMSF will then become a Small APRA fund.
• Wind up the SMSF and roll over all members benefits to another complying super fund.

Becoming a Trustee again

The following circumstances are the only ones under which the disqualified status can be changed:

Convicted of an offence involving dishonesty

If an individual is disqualified due to being convicted of an offence in relation to dishonest conduct, they may apply for a declaration waiving disqualification. They must apply within 14 days of the conviction and only if the penalty or prison term is less than stated in the legislation

Insolvent under administration

If an individual is disqualified due to being insolvent under administration (undischarged bankrupt) they cannot have their disqualification waived. However once the insolvent under administration ends (a discharged bankrupt), they will no longer be disqualified and can once again be a trustee of an SMSF

Disqualified by court or regulator

If an individual is disqualified by a court or regulator then they need to refer to the legislation for the circumstances in which a request can be made for the disqualification to be revoked.

Conclusion

Make sure you are aware of the circumstances under which someone may become disqualified.  Financial advisers should check the circumstances of members/trustees when taking on a new client to make sure they have not become disqualified.

For all SMSFs that are administered by Super Plus, we send a questionnaire with each year’s financials, which among other matters,  includes details of what a disqualified person is and requires the trustees to confirm that all members are still eligible. This provides peace of mind to trustees and their financial advisers knowing this crutial compliance requirement is checked.

This article has been produced using information sourced from the ATO.