A recent case heard in the Supreme Court of New South Wales has highlighted the critical nature of the SMSF trustee declaration and the importance of adhering to it, a specialist audit firm has said.
Saul SMSF founder David Saul noted the case of Jenifer Helen Papadam v Smidam Pty Limited demonstrates the disastrous outcomes that can eventuate if the responsibilities set out in the trustee declaration are not followed and taken seriously.
The case in question involved an SMSF with several years’ worth of financial statements and tax returns in arrears and sibling trustees who were in severe conflict with one another. The fund was placed into the hands of a receiver and the court appointed Saul SMSF to audit the corporate trustee’s financial statements and formulate a rectification plan to ensure the fund’s compliance with the Superannuation Industry (Supervision) Act.
Upon review, Saul SMSF issued an opinion to the receiver that the fund had failed to maintain adequate records to allow proper financial statements to be prepared with any degree of accuracy.
“There were no minutes of anything. The investment strategy was way out of date and was completely inappropriate for what the current circumstances of the fund were,” Saul told smstrusteenews.
“To me it all comes down to the trustees abiding by their duties and responsibilities outlined in the ATO trustee declaration.
“It’s a really key document and it’s just being thrown in front of people when they set up a self-managed super fund. They’re just being told ‘here, sign this’ over and over and over again.”
He pointed out the Papadam case demonstrated the complete failure of the trustees to comply with their specified duties, such as the need to keep records of decisions made about the running of the fund, including the appointment of professional advisers and the retirement of members and the payment of benefits, and having to take appropriate action to protect the fund’s assets.
“Because they haven’t observed these things, this has destroyed their retirement savings,” he said.
The receiver attempted to prepare the relevant financial statements, but ultimately came to the same conclusion and suggested the winding up of the fund would be the only practical course of action. In doing so, the receiver asked for its fees to be increased from an initial cap of $40,000 to an amount of $130,549.37. The principal asset of the fund had been sold for $914,896 and is under control of the court.
“The situation is eating these people’s retirement savings and they’re failing to observe this,” Saul noted.''