What happens if the former trustee of an SMSF is still the registered proprietor of an SMSF property and goes into administration? This issue was considered in the decision of Re Absolute Vision Technologies Pty Ltd (subject to deed of company administration) [2024] NSWSC 1010 (13 August 2024). There, the Court ordered that a contract be completed where the former trustee entered into a contract of sale of real estate (Suite 901) notwithstanding it was in administration.

The SMSF corporate trustee (AVT) had been replaced by a deed of change of trustee in March 2017, however, the title to Suite 901 was not transferred to the new SMSF corporate trustee (AVT SF). Suite 901, which was sold by the administrator in May 2024.

An audit report and audit management letter to AVT ST for the 2020-21 financial year identified several contraventions of the superannuation law by AVT ST, including a failure to lodge tax returns.

AVT at the time of its voluntary administration had been trading as an independent cloud-based software vendor, and had formerly acted as trustee for the Absolute Vision Technology Pty Ltd Super Fund (SMSF) until March 2017.

The administrator of the SMSF sought the Court’s advice on dealing with the contract of sale for Suite 901 entered into with the incorrect corporate trustee on title.

The Court considered:

AVT originally held Suite 901 as trustee for the SMSF and not in its own capacity. Although the land title details did not record trust names and capacities, the original contract of sale for Suite 901 and the financial records of the SMSF supported the view that Suite 901 was purchased out of SMSF assets rather than out of AVT’s own assets.
It would be a breach of trust for AVT to not transfer Suite 901 to AVT SF, which it held as trustee for the SMSF, as clause 2(c) of the deed of change of trustee contained the standard provisions binding AVT to take all steps necessary to transfer and give control of the SMSF assets to the new corporate trustee AVT SF.
The breach of trust point above was further explained with regards to the Trustee Act 1925 (NSW) (Trustee Act), in particular section 9 on vesting of trust property in a new trustee, where section 9(3) provides that real estate trust assets shall not vest in the new trustee until the transfer of land is registered on title, and section 9(7) then provides for the right of the new trustee to call for or sue the former trustee if such transfer of real estate of the trust is not registered on title.
At the time of the sale, Suite 901 was held by AVT as bare trustee, pending the transfer of Suite 901 to AVT ST as trustee of the SMSF or completion of its sale.
As AVT would be acting as bare trustee in holding Suite 901 it would not be empowered to sell trust assets and must instead protect the trust assets (quoting from Caterpillar Financial Australia Pty Ltd v Ovens Nominees Pty Ltd [2011] FCA 677). However under section 81(1) of the Trustee Act the Court may by order confer a necessary power on the trustee in the absence of such a power where it is expedient to do so in the Court’s opinion.

The Court ultimately held that although the sale would be in breach of trust, that completing the sale would not prejudice the SMSF or its members, who had given their informed consent to the sale, and that a failure to complete the sale would expose AVT to claims under the sale contract and under the problematic lease arrangement.

Therefore the Court granted the direction that AVT was justified in completing the contract of sale for Suite 901.

The Court also directed that AVT was justified in distributing the net proceeds for the sale of Suite 901 to AVT ST, rather than paying those funds into Court, in part because the Commissioner of Taxation had been notified of the Proceedings and had indicated that they did not intend to participate. Such direction would not prevent the Commissioner of Taxation pursuing any available regulatory penalty or claim against AVT ST in future.

The case provides some relief that SMSF assets can be protected from the trustee’s personal administration issues. That said, if the title had been appropriately transferred to the new trustee back in 2017 then there would have been no need for the time and expense of seeking a Court direction. This case also reinforces the benefits of having a standalone corporate trustee for an SMSF.

Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au

Terence Wong
Senior Associate
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au