Proposed amendments to the Bankruptcy Act may well mean the closure of a loophole which has allowed bankrupts to use superannuation as a means of protecting their assets.

A partner in Sydney law firm, Dibbs Barker Gosling, Gerard Breen says that according to the Insolvency and Trustee Service Australia (ITSA), the proposed legislative amendments will insert a new provision allowing bankruptcy trustees to recover “excessive” voluntary superannuation contributions and payments to retirement savings accounts (RSAs) made prior to the bankruptcy.

Further, he says the ITSA has indicated the new provision will also affect transfers to superannuation funds or RSAs made by a bankrupt prior to the bankruptcy where the transfer was made with the intention to defeat creditors.

“If the bill makes its way into law, all superannuation contributions made by a bankrupt after December 16, 2003, will be caught by the new provisions, as would rollovers of pre-bankruptcy transfers,” Breen says.

“This means that if contributions fall within the clawback provisions, the bankrupt’s trustee will be able to add those funds to the asset pool available to creditors. This will bring superannuation contributions and payments into line with other assets accessible to the trustee,” he says.

Breen says that while a definition of “excessive” in the context of voluntary superannuation contributions is not yet available, ITSA is indicating that the provision will be limited to after tax money, such as contributions made on behalf of a spouse or child.

“We don’t expect employer contributions, contributions of self-employed people for which a tax deduction is claimed, personal contributions up to an annual $5000 limit or personal contributions required under an employer sponsored fund will fall into the clawback net,” he says.