Properly drafted self-managed superannuation fund trust deeds and their corporate trustee constitutions can help manage disputes before they arise. They are very important for a good estate plan. Leigh Adams Business Lawyers, as lawyers managing self-managed superannuation fund disputes, have drafted many of them. They help keep their clients out of court.
What types of disputes arise?
Consider spouses who are separating and one wants to start a pension to assist with the running of a new household. They need to establish an investment strategy to allow sufficient liquidity to make the pension payments but the other spouse does not co-operate.
Disputes can also relate to the allocation and payment of death benefits – for example, where mum, dad and the two kids are all members and directors of the corporate trustee. Mum dies and her pension reverts to Dad who dies. The two kids who are also executors of Dad’s will are very different. One is very successful and the other is struggling and the former thinks that Dad wanted the self-managed super fund to be split equally – but the latter thinks Dad always wanted him to get more. Maybe there is a letter or email or some conversation supporting this idea.
What about where one member has taken action without the knowledge or involvement of the other member/s. For example, where the husband is the dominant member. He begins to make related party loans, causing breaches which the wife discovers and the wife wants to disclose the breaches to the ATO but the husband refuses to cooperate.
There can also be an exit of self-managed superannuation fund members in the context of a breakdown between fund members who are not spouses, but business partners or siblings. For example, on advice, two business partners create a single self-managed superannuation fund of which they are both members and into which their business premises are transferred. They are tickled pink because of the tax advantages and stamp duty concessions available to them. But there is a fall out and one sells out his share in the business and wants to roll over his interest in the self-managed super fund but they cannot agree on the value of the business real property.
Disputes in self-managed super funds are often about leverage. For example, to put pressure on a spouse in a Family Court dispute, one spouse could be refusing to sign the self-managed superannuation fund financial statements or failing to complete an audit.
Other disputes involve self-managed superannuation fund deadlocks. Say one director of the corporate trustee is being outvoted by two others – this is not necessarily a clear victory because the majority may discover that the shunned director may be a joint signatory or they may require his signature on a transfer or other document.
The trust deed
Our self-managed super fund dispute lawyers Sydney know that a good self-managed superannuation trust deed is an essential part of a good estate plan.
A trust deed can prescribe how the fund is controlled on a practical level. For example, if the self-managed super fund trust deed says that a member may receive their benefit in the form of a lump sum or pension, and that it is the trustee who must decide the issue after taking into account relevant matters such as (1) any expressed preference of the member (2) the fund’s liquidity (3) the trustee’s capacity to administer a pension payment (4) the likelihood of demands or requests for payment of pensions in the near future and (5) whether a lump sum can be paid without the need to sell assets, then where a trustee exercises their discretion taking into account these nominated matters, a court will generally not intervene.
The trustee company’s constitution
The constitution governs quorums for member meetings, quorums for director meetings, how many votes each member and each director can exercise, who is to be the chairman and many other matters.
Some constitutions deal with deadlock issues. For example, the chair may have a second or casting vote. The majority owner of the shares of the corporate trustee can usually remove a director and will have a 6 month grace period to rectify any non-compliance issues arising out of it.
What about a shareholders’ agreement between the shareholders of the corporate trustee of a self-managed superannuation fund? This is unusual, but appropriate trigger events could be inserted making a mandatory exit obligatory if necessary.
What is required to remove a director? If it is a question of a majority resolution of the company members, then an easy way forward is simply not to issue new shares to the new director/member.
Voting control in the Fund and in the Constitution
Having an even number of members can breed deadlocks. However, this can be resolved if the member with the highest balance has a casting vote in the event of a deadlock.
In addition, voting rules in the trust deed or in the trustee constitution can include a provision for each trustee/trustee director to have one vote for each dollar held in their account. This works well if assets are cash and shares and easily valued but it is not so good if there is real property or unlisted shares, as these cannot be readily valued.
Also a third party’s consent could be required for certain decisions to be made. This person, ‘the guardian’, could be required to consent to any transfer of assets “in specie” or to amend the trust deed, or to deal with key matters concerning the treatment of business real property in the self-managed superannuation fund or the lease relating to it (if any).
Conditional Membership of Self-Managed Superannuation Funds
To avoid a dispute in your self-managed superannuation fund, the trust deed can have provisions that only admit members on a conditional basis. Events giving a right to remove a member can include:
(i) Divorce or separation;
(ii) Failing to attend a minimum annual number of director meetings;
(iii) Having a material disagreement not resolved within 30 days;
(iv) The termination of a business associates’ relationship under, say, a buy-sell agreement;
(v) Circumstances where the member with the majority account balance so determines;
(vi) Where any legal dispute arises between the parties.
Dispute Resolution for Self-Managed Superannuation Funds
Whilst Self-Managed Superannuation funds are not required to prescribe arrangements for the internal resolution of their members’ disputes, they may engage in dispute resolution mechanisms including:
- Mediation – the mediator is skilled at getting each side to see the strengths and weaknesses of themselves and the opposing party. But they have no power to do anything. They are appointed by the parties to assist in resolving the dispute.
- Conciliation – this is like mediation, but the conciliator also has an advisory role.
- Arbitration – this is like mediation, except that the arbitrator is empowered by the parties to determine the dispute and the parties agree to abide by the arbitrator’s decision.
Persons holding Enduring Powers of Attorney
Under Self-Managed Superannuation Fund Ruling 2010/2, a single person can be appointed as a trustee or trustee director for more than one member of a self-managed superannuation fund, provided that that person is the holder an enduring power of attorney in respect of each member. So every member of an SMSF affected by the dispute could appoint a single trusted individual as the sole trustee or sole director of the corporate trustee. But what individual would be brave enough to take on such a role? Especially since ss 17A(1)(f) and (g) of the Superannuation Industry (Supervision) Act 1993 provides that trustees and trustee directors cannot receive remuneration for their duties or services.
Court injunction – s 315 SISA
If the dispute involves a contravention of the Superannuation Industry (Supervision) Act 1993, a court application can be made seeking an order restraining the person from engaging in certain conduct. An example, is where a majority of trustees have resolved to make loans to one of the member’s spouses.
If you have problems in this difficult area, then contact our self-managed superannuation fund dispute resolution lawyers North Sydney on 02 99640022 at Leigh Adams Business Lawyers. We get you there.