An underappreciated fact when it comes to estate planning is that the monies held in a superannuation fund do not automatically form part of a person’s estate. Whilst in practice this can be an academic point for many executors managing an estate, if the rules of the superannuation fund do not contemplate a particular contingency arising the executor of an estate may have no choice but seek judicial intervention.

This is what occurred in the case before the Supreme Court of NSW in McCabe v The Baltins Superannuation Fund [2017] NSWSC 1671.

What was the issue?

Ilze Baltins died in 2015. Mr McCabe was appointed the administrator of Ms Baltins estate, and sought to distribute the assets of the fund to the beneficiary under Ms Baltins’ will. However, a significant portion of her assets were in her Self-Managed Super Fund (SMSF).

The problem was that Ms Baltins had appointed a company, I Baltins Pty Ltd (the Company), to act as the trustee of the SMSF. Ms Baltins was the sole director and shareholder of the Company, and she was also the sole member of the SMSF. Prior to her death, Ms Baltins failed to pay the ASIC annual renewal fee, and in the months after her death, ASIC deregistered the Company in response.

The SMSF was therefore without a trustee. Accordingly, Mr McCabe was unable to arrange for a death benefit to be paid from the SMSF to the beneficiary of the estate.

Could the company be reinstated?

The obvious answer to this problem would appear to be reinstating the company. This can ordinarily be done by simply applying to ASIC. However, two issues plagued the Baltins SMSF that prevented this course of action.

Firstly, in order for an application for reinstatement to be approved, the director must make the application. Unfortunately, the sole director had passed away.

Secondly, it is necessary to show to ASIC that the Company should not have been deregistered. As set out in ASIC’s Regulatory Guide 83, it will not reinstate a company simply because it is convenient to do so. In this situation it was clear – the Company should have actually been deregistered as there was a failure to pay annual fees and the sole director and shareholder had passed away.

Where to from here?

In this situation, Mr McCabe had to apply to the Court to resolve the issue. Pursuant to section 601AH of the Corporations Act 2001 (Cth), the Court can order that ASIC reinstate the Company.

Unfortunately, this too had a problem. It is well established that in order to bring an application to court to seek reinstatement of a company, you must be a “person aggrieved” by the deregistration.

Intuitively, you would think that the administrator or beneficiary of the estate would be a “person aggrieved”, but this is not the case. What is required is a legal grievance and the Courts have held that a beneficiary under a trust is not so aggrieved. The basis for the Court’s position is that upon deregistration of a corporate trustee, the assets of the trust automatically vest to the Commonwealth.

Accordingly, the beneficiary’s rights have not changed and they are not technically deprived of anything. It is just the Commonwealth that is now trustee as opposed to the former corporate trustee.

So what is the solution?

Whilst there may not be a legal grievance created by deregistration of a corporate trustee, it can create significant logistical difficulties. So Mr McCabe instead sought an order from the Court that there be new trustees appointed.

The Supreme Court has clear powers, pursuant to the Trustee Act 1925 (NSW) to make an order appointing new trustees and vesting the assets of the trust into them. In this case the Supreme Court did so.

Implications

SMSFs are becoming increasingly popular, with the most recent figures from the ATO showing that there are nearly 600,000 SMSFs in Australia, with over 1.1 million members.

The case of Baltins highlights the need for care in drafting the foundational documents for a SMSF. Had a simple clause been added into the trust deed there would have been no need to approach the Court for relief.