Transfer of funds out of retirement pension before bankruptcy – Insolvency/Bankruptcy


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A person with large personal guarantee debt due to several associated entities, now bankrupt, came to Worrells to file for bankruptcy. The debt was owed to one of the big four banks and she had already realized something of value. Based on the information they provided, no material assets were available for realization and, being currently unemployed, income contributions were not required under the Bankruptcy Act 1966.

From the information made available when we were appointed as trustee in bankruptcy, it seemed unlikely that there would be a return to creditors. Bankruptcy administration used to seem simple enough, until it wasn’t.

Our investigations identified that eight months before filing for bankruptcy, the debtor transferred $150,000 from his regulated pension fund to his self-managed pension fund. This transaction in itself would not be a problem provided the self-managed fund was regulated, the problem arose when the debtor then transferred these funds out of the self-managed fund to a friend to “keep” them.

Under 116(2)(d)(iii) of the Bankruptcy Act, divisible property among creditors of a bankrupt does not extend to the balance of a regulated superannuation fund. However, trustees in bankruptcy have limited powers to collect payments made to a superannuation fund if it can be shown that those payments were intended to prevent creditors from accessing those funds.

The bankrupt explained to us that at the time of the transfer, the bank took possession of his assets subject to the terms of the personal guarantee agreement and did not know if his pension fund was protected in this scenario. So they took matters into their own hands and transferred the retirement balance to their friend’s account to protect.

Herein lies the problem, at the time of bankruptcy the funds were no longer held in a regulated superannuation fund, they were reclassified upon transfer to the debtor’s friend as “funds held in trust”, an asset that is acquired and available to a trustee in bankruptcy. Following an authoritative letter from our attorney, the debtor’s friend paid the $150,000 into the bankrupt’s estate, after an understandable suggestion that he simply transfer the funds to his friend to try to repair the damage done.

So how could this have been avoided?

With good advice, at a fraction of the cost, this bankrupt could have avoided losing his pension. If they had come to Worrells when things started to go downhill with the entities attached to their personal guarantees, we could have explained how bankruptcy works and how divisible assets/property are handled in a bankruptcy scenario. We do it every day for free and without waiting. An accountant or lawyer could also provide this guidance and clarity. We are truly saddened to see the cost of not getting advice to have such a big impact on someone.

Related Articles:

Contributions on income in the event of bankruptcy

Bankruptcy and retirement pension

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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