Superannuation legislation does not deal with the situation of one trustee behaving improperly in relation to their Self Managed Super Fund (SMSF) obligations and the other trustee complying.

The complying trustee may seek court approval to remove the trustee who was responsible for the illegal early access.    This is what occurred in Notaras v Notaras [2012] NSWSC 947 where two brothers, Brinos and Basil, were members/trustees of an SMSF.   Brinos illegally accessed over $52,000.  As a result, Brinos no longer had any assets in the Fund.

Basil sought and obtained court approval for removal of Brinos as trustee.  The Court relied on s70 of the Trustee Act 1925 (NSW) to authorise removal of the recalcitrant brother.  The Court also ordered Basil to seek from the Australian Taxation Office (ATO) a ruling or exemption from the Superannuation Industry (Supervision) Act 1993.

An alternative to seeking court removal is to report the breaches to the ATO so that the Fund remains compliant.  The ATO may disqualify the trustee.  In these circumstances, the SMSF should then remove the member (provided this is permitted by the Trust Deed) and rollover the members’ funds, if any, to another fund so that the Fund remains complying.

The ATO has provided a case study which could apply to the current circumstances.

https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/SMSF-case-studies/Case-study—disqualified-trustees/

However this would only assist in the case of an individual trustee.  Generally, in the case of a corporate trustee, shareholder approval is required to remove a trustee unless the Trustee Deed provides otherwise.

Message: Seeking removal of a trustee at court is a costly exercise to be avoided if at all possible.  If in doubt seek legal advice to ensure your fund remains compliant.