27/05/2015

A recent Supreme Court decision has highlighted the different ways that SMSF property and personally owned property is to be managed.

Natale and Ferdinado Pisciuneri operated fruit markets throughout the Sydney suburbs under the name “Duffy Bros”. In 1996, the two brothers entered into a guarantee to secure a line of credit from Sydney Markets, in which they charged their interests in ‘any land they own now and in the future for all monies guaranteed’.

The Piscuineri brothers were also members and trustees of a self managed super fund (‘SMSF’) and used money from their fund to purchase a property in Goulburn. A number of changes to the composition of trustees then ensued, and ultimately, ACN 123 849 883 Pty Ltd (‘ACN 123’), was appointed as the corporate trustee of the Fund in 2011. These changes to the trustee structure were not reflected in the title documents of the Goulburn property and in 2003 the St George Bank secured a mortgage by mistake over the property, as well as over an adjacent property which was owned by the brothers in their personal names.

In 2010, the Duffy Bros defaulted on their financial obligations to Sydney Markets, and following discussions between Natale Pisciuneri and the manager of Sydney Markets, a caveat was lodged over the Goulburn property by Sydney Markets pursuant to the 1996 guarantee. It was during the course of these discussions that Natale concealed that the Goulburn property was held on trust for the Superannuation Fund, and instead represented that he was the beneficial owner and that the property belonged to him alone.

Natale Pisciuneri’s fraudulent representations that he owned the Goulburn property were relied on by Sydney Markets as justification for allowing further advances to the fruiterers. Ultimately the contested ownership of the Goulburn property culminated in a four-way Supreme Court battle between ACN 123 (the Fund Trustee), the two estates of Ferdinado and Natale and Sydney Markets Credit Services in Sydney Markets Credit Services Co-Operative Limited et al (Sydney Markets Credit Services Co-operative Limited ABN 67503292864 v Barry Anthony Taylor as Trustee of the Bankrupt Estate of Natale Piscuineri; A.C.N 123849883 Pty Limited v Sydney Market Credit Services Co-Operative Limited (No. 2) [2015] NSWSC 499 (1 May 2015).

Justice Slattery criticised Natale Pisciuneri’s casual attitude to the difference between his own assets and the assets of the SMSF, ultimately finding that the Superannuation Fund was the beneficial owner of the property, and therefore title of the Property was to be transferred to the Trustee ACN 123.  

The guarantee was interpreted as not applying to the Goulburn Property because it covered the brothers’ personal interests in land, not their interests as trustees of the SMSF. Sydney Markets was held not to have an equitable interest in the land. As Justice Slattery commented, even if the 1996 guarantee had extended to the Goulburn property, the guarantee could not be construed in a way that required both parties to break the law in order to enforce it. Had the Goulburn property been included, this would have been in breach of the law at the time when the guarantee was drafted which prohibited trustees of a Superannuation Fund from creating a charge over the interests of the Superannuation Fund. This prohibition is still in place today in s67 of the Superannuation Industry (Supervision) Act 1993, and carries hefty civil and criminal consequences (including fines up to $10,200 per trustee) if it is breached.

Ultimately, this case serves as a warning to trustees of an SMSF to separate assets of their SMSF from their own personal assets and to only deal with the assets of the Fund in accordance with their duties as trustees. Property of the superannuation Fund cannot be dealt with in the same way as personal assets and cannot be used as a bargaining tool to secure further credit where it would not otherwise be provided. Trustees must be very careful not to misrepresent property that they are holding in their capacity as trustees of an SMSF as property of their own, a temptation which may be hard to resist especially when you consider that many state property registers will not register the trust relationship on title.

If you have any questions regarding any information contained in this article, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.