What happens if the former trustee of an SMSF is still the registered proprietor of an SMSF property and goes into administration? 

This issue can often arise for trusts or SMSFs for which legal arrangements in place have been forgotten. For example, if a corporate trustee was replaced with individual trustees.

In the decision of Re Absolute Vision Technologies Pty Ltd (subject to deed of company administration) [2024] NSWSC 1010 (13 August 2024) the Court ordered that a contract of sale be completed where the former trustee of Absolute Vision Technology Pty Ltd Super Fund (AVT Fund) entered into a contract of sale of real estate (Suite 901) notwithstanding it was in administration at that time. The administrator of the SMSF sought the Court’s advice on dealing with the contract of sale as the wrong corporate trustee remained on title for Suite 901.

The SMSF corporate trustee (AVT) had been replaced by a deed of change of trustee in March 2017, however, the title to Suite 901 was not transferred to the new SMSF corporate trustee (AVT ST).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

The deed of change of trustee was signed dated 30 March 2017 between AVT as retiring trustee and AVT ST as new trustee. The usual Change of Trustee Deed required the retiring trustee AVT to take all steps necessary to transfer and give control of the AVT Fund assets to the new trustee AVT ST, but did not automatically vest those assets in AVT ST as new trustee such that the retiring trustee AVT would hold all Fund assets as bare trustee for AVT ST as from 30 March 2017 pending their actual transfer. 

Sometimes assets are transferred to the new trustee before the deed of change of trustee is signed and sometimes they are transferred after, or in a staggered manner, as some assets take longer for the transfer to complete.

The Court considered:

• At paragraph 20 of the Judgment the transfer of real estate was discussed in isolation where the NSW Trustee Act (s 9) and Real Property Act provisions would overrise any automatic vesting of property under a deed of change of trustee (if allowed under the change of trustee provisions of the SMSF governing rules at the time) such that land required to be registered in the Torrens Register (i.e. real estate) does not automatically vest in the new or continuing trustee(s) and only vests when the appropriate transfer is executed and registered.

• The new trustee can seek to enforce the obligation in the deed of change of trustee to have the land transferred to it from the former trustee by orders under the NSW Trustee Act (ss 71 and 78).

• At paragraph 16, the Court was satisfied that the balance of the evidence establishes that Suite 901 was held by the former trustee AVT from its retirement date as trustee of the AVT Fund 30 March 2017 as bare trustee pending the transfer of Suite 901 to AVT ST as trustee of the AVT Fund or its sale. 

• AVT was holding the property as bare trustee pending transfer to the AVT ST and was given powers by the Court under the NSW Trustee Act (s 81(1) quoting from Caterpillar Financial Australia Pty Ltd v Ovens Nominees Pty Ltd [2011] FCA 677) to proceed with the sale to avoid penalties for the Fund for breach of the contract of sale of Suite 901.

This decision effected a property transfer from former trustee to new trustee which should have been completed in March 2017. 

It is a more costly means of completing the transfer if it was not done back when a simple duty exempt land transfer was all that was needed. 

SMSF auditors are generally required to acquire title searches to verify land ownership indicating it would be rare that such a discrepancy in legal title ownership of a significant SMSF asset could be missed for 7 years - however it can happen and can be rectified by a court as in this case.