One of the greatest benefits of working as a public accountant is variety. By remaining a general practitioner, rather than developing a practice that specialised in one particular profession or trade, I have the pleasure of working with a diverse mix of clients that range from pensioners to professionals and sole traders to multinationals.
In addition, I have the opportunity of solving a wide variety of tax, financial, superannuation, investment and business problems.
Several years ago a client presented the practice with the opportunity of dealing with the twin issues of a business that was failing and the problems that this caused for a self-managed super fund (SMSF).
The client had been operating a concreting and asphalting business that, due to increasing material costs combined with an increasing labour cost, poor financial control by the owner and tightening credit as a result of the global financial crisis, meant it was failing and the owner was facing bankruptcy.
Practising as a public accountant for almost 40 years has given me a wide range of experience and knowledge to draw on to help clients, but also links to a network of specialist professionals to call on.
First step
As the couple had lost their family home and the husband had been declared bankrupt, the best first step for this client was to refer him to an insolvency specialist who would assist him and his wife to start again financially.
With this assistance, structures were put in place for the wife to start a new business that employed the husband, and eventually enough profit and cash flow was produced to enable them to buy another home.
An added complication was that the client and his wife were both individual trustees of an SMSF, and a bankrupt cannot be a trustee of an SMSF.
In theory, there were two alternatives. The first was to cash up the super fund and roll over the proceeds into either an industry fund or a commercial super fund. The second was to convert the SMSF to a small fund regulated by the Australian Prudential Regulation Authority by appointing an approved trustee.
In reality, the second option was the only feasible option because the major asset of this SMSF was a collection of mint-condition first-issue banknotes.
Influenced by passion
As can often happen when investment strategies of SMSFs are influenced by a passion of the members – whether that is share trading, property, gold bullion or collectibles such as banknotes– major problems can be caused for the super fund.
In this case, all of the compliance boxes had been ticked with regard to this specialised investment. This included getting independent market valuations of the banknotes on a regular basis, and storing the banknotes in a specialist storage facility.
However, having a super fund with such a specialised investment made the job of finding an approved trustee company much more difficult. Eventually a trustee company was appointed that accepted the position on the basis that the banknotes would be sold.
Understandably, as a result of the general tightening of credit and an unwillingness to invest in collectibles, it proved impossible to find a buyer that would pay a reasonable market value for the banknote collection.
Thankfully, the trustee company recognised the difficulties of selling the banknote collection, accepted our attempts to find a buyer and remained in place for approximately four years. After the husband was discharged from bankruptcy, a company was formed to take over as trustee and the SMSF resumed its operations.
