Whilst the Bankruptcy Act does not specify that the payment must be received from the bankrupt’s super fund, the payment must be made by a regulated super fund direct to the bankrupt. This issue was recently considered by the Federal Court ( see Cunningham v Gapes ) when it found in favour of the bankruptcy trustee who was seeking recovery of $87,900.33 paid to the bankrupt by the executors of his mother’s deceased estate, the bulk of which comprised of the funds which the executors of the mother’s deceased estate had received from her super fund.

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The bankrupt banked the $87,900.33 being his one-third interest in his mother’s deceased estate, into his wife’s bank account because he did not have a bank account. When the bankruptcy trustee became aware of the payment, he sought repayment of the $87,900.33 from the bankrupt and his wife, who rebutted the trustee’s claim asserting that the payment was protected because the subject $87,900.33 was directly and solely attributable to the funds held by the bankrupt’s mother in a superannuation fund.

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The trustee responded by applying to the Court for declarations and orders that the moneys were not protected because the payment was not made directly to the bankrupt by the super fund but instead, by the executors of his mother’s deceased estate.

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The Court found for the trustee agreeing with his submissions that once the mother’s super fund paid the $248,696.49 in the super fund to the executors of the mother’s deceased estate, the moneys lost its character as superannuation and the payment was received by the bankrupt from the deceased estate and not the super fund.

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The bankrupt’s wife unsuccessfully relied on a previous judgment (Trustees of the Property of Morris (Bankrupt) v Morris) in which the Court rejected the trustee’s claim to two payments the bankrupt had received from her late husband’s super fund. However, the Court in the current case, pointed out that the Morris judgment did not apply because the two payments were made by the super fund directly to Mrs Morris the bankrupt.

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Whilst Commonwealth’s policy on super may spark some interest with insolvent debtors facing bankruptcy and prompt them to transfer their available but dwindling funds, into their super fund prior to bankruptcy, the Bankruptcy Act was amended in October 2007, to prescribe that any payments into super funds in such circumstance made since 28 July 2006 to defeat creditors, can be recovered by the bankruptcy trustee if the debtor becomes bankrupt. The Federal Circuit Court recently considered these provisions when finding in favour of the trustee who asserted that the bankrupt’s transfer of his Armidale property to his super fund was done with the intention of defeating of his creditors ( see Jones v Official Receiver & Anor (No.4) [2017] ).

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So it is considered that whilst the provisions of the Bankruptcy Act concerning superannuation are in line with the Commonwealth’s overall policy on superannuation, its provisions are also designed to protect the interests of creditors and those interests are being upheld by the Courts.