SMSF Trustee Disputes

If one of your SMSF trustees has failed to act in the best interest of the fund members, the SMSF’s compliance status may be at risk even other trustees adhere to their responsibilities.

Recently, we have an SMSF client who has trustee disputes and the scenario can be summarised as below:

-Arun is a member of the fund and he is also the director of a trustee company that is the tenant of the factory owned by an SMSF with other two members. They have an arms length commercial lease agreement in place in order to comply with the SMSF rules.

-Arun has been regularly paying the rent late and has to date still not paid any of the outgoings invoices issued since he moved in and these are will over 100 days in arrears.  Other trustees have been following the steps outlined in the lease agreement as per the requirement of the SMSF rules.

-The other trustees have taken the steps to send Arun an notice to vacate the property due to breaches of the lease agreement.  Also as a member of the fund and a director of the Trustee of the fund he is not acting in the best interest of the fund by not paying the rent and outgoings in accordance with the lease agreement.

-Arun is getting very defensive and hard to deal with and he will not vacate the property as ordered to do so.

Although the two trustees have acted honestly and exercise skill and diligence in managing the fund, the fund has breached the arm’s length rules and the contravention report will be lodged by our external auditor.

Our recommendations for trustee disputes:

– try to resolve the disputes by negotiation;

– if there are potential compliance issues due to the disputes, get external auditor and lawyer involved as early as you can;

– if the SMSF has breached superannuation law or regulations, trustees need to rectify the breaches immediately;

– if the breaches  are not rectified, the trustees need to reports to ATO ASAP by using SMSF early engagement and voluntary disclosure service.