Case note: SMSF not liable to repay borrowed contributions

In Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2013] VSC 543 the Supreme Court of Victoria decided that money borrowed by a company and used for contributions to a SMSF could not be recovered from the SMSF.

The company borrowed $2.5 million from Macquarie Bank with the stated purpose of the facility being ‘to assist with superannuation contribution’.

When the company defaulted Macquarie appointed receivers who tried to recover $1.7M paid in employer contributions, interest free loans and eligible termination payments for the directors.

The court found that the company director, in his capacity as a director of the borrower company, breached fiduciary duties owed to the company by facilitating the making of contributions to the Super Fund either directly by the company or indirectly on behalf of individual members of the Super Fund. In so doing, he failed to act in the interests of the company, exercised his powers and duties for a collateral and improper purpose, and did not avoid conflicts of interest.

But notwithstanding these findings, the court decided that “the plaintiff cannot succeed in its claim against RSF, the trustee of the Super Fund, as there was no knowing receipt of trust property by RSF and RSF gave valuable consideration for the contributions made to the Super Fund which it accepted in good faith and without notice of the breaches of fiduciary duty. Accordingly, RSF does not hold the funds or their traceable proceeds on trust for the plaintiff nor is it liable to the plaintiff for money had and received.”

Critically Judge Almond decided that whilst one SMSF trustee director knew the source of the funds the co-directors did not, at the time the monetary contributions were received by the Super Fund.

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