Part 2: Understanding the Gainer Associates Decision: A Critical Examination of SMSF Governance
In the latter part of the New South Wales Supreme Court's decision in in the matter of Gainer Associates Pty Limited [2024] NSWSC 1138 , the court addressed the request by Gainer Associates Pty Ltd (Gainer) regarding amendments to the trust deed of Gainer Associates Superannuation Fund (Fund) and the remuneration of Mr Heesh. This segment is critical for understanding how trustees can navigate complex legal landscapes while remaining compliant with the Superannuation Industry (Supervision) Act 1993 (SIS Act).
See Part 1 for detailed background and key findings of this case.
Governing Rules Amendments
Gainer sought to amend its Governing Rules (Fund deed) under Rule 24.1 of the Fund deed, which allows for variations necessary for compliance with the SIS Act. Gainer proposed to delete Rule 14.2 and Rule 16.7, in order to pay the death benefits and remunerate Mr. Heesh for his services.
These rules provided that:
Rule 14.2:
“The Trustee must not to be paid or otherwise receive any remuneration for acting or carrying out its responsibilities as Trustee of the Fund unless otherwise permitted under the Superannuation Laws and/or any determination by the Regulator”; and
Rule 16.7:
“Subject to the Superannuation Laws and despite Rule 16.4, at any Trustee Meeting dealing with a deceased Member's Death Benefits or a Member's Incapacity Superannuation Benefits only the Member's Legal Personal Representatives or Member whilst alive and legally capable and competent may vote on any resolution dealing with the deceased or incapacitated Member's Superannuation Interest or Superannuation Benefits.”
Court’s Ruling on Governing Rules
In this decision, Gainer sought the court's advice pursuant to section 63 of the Trustee Act 1925 (NSW) to amend specific provisions in its governing rules that could hinder its ability to distribute death benefits and to obtain appropriate remuneration for Mr Heesh. Rule 16.7 restricted voting on resolutions concerning deceased members’ benefits to only the legal personal representatives or the member themselves.
Court’s Approval to Remove Rule 16.7 of the Fund deed:
The court approved the removal of Rule 16.7 of the Fund deed, allowing Gainer to proceed with the distribution of the deceased member’s benefits without further delay. This ruling acknowledges the practical needs of trustees in managing funds and fulfilling their fiduciary duties promptly. The court highlighted the necessity of balancing compliance with operational efficiency, especially in sensitive matters involving deceased estates.
Rejection of the Amendment to Rule 14.2 of the Fund deed:
Conversely, the court declined Gainer’s request to delete Rule 14.2 of the Fund deed, which prohibited remuneration for trustees unless expressly permitted under superannuation laws. This rule is rooted in section 17A(2)(c) of the SIS Act, aimed at preventing trustees from improperly accessing superannuation benefits. The court emphasised that any amendments regarding remuneration had not been communicated to the Australian Taxation Office (ATO), stressing the importance of transparency and adherence to regulatory requirements.
Remuneration of Mr Heesh
Despite the prohibitive language in the SIS Act regarding trustee remuneration, the court found merit in considering Mr Heesh's remuneration under specific exceptions. Mr Heesh's professional background and the nature of his work necessitated a nuanced approach.
The Court’s Justification for Remuneration
The court established that two-thirds of Mr Heesh’s claimed fees related to professional services rather than his capacity as a trustee, thus falling within the exception outlined in section 17B(2) of the SIS Act. This provision allows remuneration for services rendered in the ordinary course of business, provided the fees are at arm’s length.
Indemnification for Trustee Costs
Ultimately, the court advised that Gainer could indemnify itself for costs incurred, including Mr Heesh’s remuneration and other legal expenses. The court’s approval was significant given the ATO’s issued an indemnity letter to Mr Heesh, which confirmed that the Fund would not be deemed non-compliant due to the payments made to Mr Heesh.
Importance of Comprehensive Indemnity Clauses
The decision serves as an important reminder to SMSF trustees to ensure that their indemnity clauses are comprehensive enough to cover various potential liabilities, including litigation expenses and trustee remuneration. The court’s ruling in this case emphasises the importance of carefully drafted governing rules for superannuation funds to facilitate smooth operations and to avoid similar disputes to this case.
Conclusion: Implications for SMSF Trustees
The Gainer case encapsulates the complexities and responsibilities inherent in managing SMSFs. It reinforces the necessity for trustees to seek professional and judicial advice when navigating ambiguous legal landscapes, particularly concerning compliance, governance, and remuneration. As SMSF regulations continue to evolve, this case serves as a guiding precedent, underscoring the importance of due diligence, transparency, and adherence to both statutory and trust deed provisions.
For more information regarding superannuation funds or if you have been appointed as an SMSF trustee, please contact us.
Alasdair Woodford
Principal
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal
Tayla Berger
Senior Associate
T 03 5226 8559 | M 0407 825 365
E tberger@ha.legal
Joseph Flanagan
Senior Associate
T: 03 5226 8504 | M 0491 307 550
E: jflanagan@ha.legal
Jemimah Fitzgerald
Lawyer
T: 03 5225 5219
E: jfitzgerald@ha.legal
