Court of Appeal: Bankrupts' KiwiSaver off limits for creditors, Official Assignee

Tuesday 21st April 2015

A bankrupt's KiwiSaver account cannot be accessed by the Official Assignee, despite financial hardship being a reason for individuals to access KiwiSaver funds early, the Court of Appeal has ruled.

Last week, the Court of Appeal declared a bankrupt's KiwiSaver funds cannot be withdrawn by the Assignee, which oversees New Zealand bankruptcies, to pay creditors as it goes against the intention of the KiwiSaver Act 2006, according to the April 17 judgement of Justice Tony Randerson, Justice Rhys Harrison and Justice John Wild. The Court of Appeal overturned Justice Ronald Young's March 2014 High Court decision, finding the use KiwiSaver funds to pay creditors undermines the "important social and economic purposes" of the 2006 legislation, which saw the government introduce the opt-out superannuation savings scheme, which is intended to supplement the universal state pension.

The Assignee fought Trustees Executors in Wellington High Court in March 2014, after the trustee refused to release the KiwiSaver funds of two bankrupts. The Assignee argued that bankruptcy was a significant financial hardship and triggers the early release clause for the superannuation funds, which are intended to be set aside until the retirement age of 65.

After that trial, Justice Young found that a bankrupt's KiwiSaver account was property under the Insolvency Act, and the Assignee could apply to the trustee for the funds, if it could show that the bankrupt's financial hardship would be reduced by the payment. If the trustee still refused to make the payment, the Assignee would need to wait until the bankrupt's account matured, at 65 years of age, to access the funds.

In his March 2014 judgement, Justice Young said it was "an unattractive result for all concerned" and that legislation reform was "clearly called for". The Assignee appealed the decision, taking it to the Court of Appeal.

In January there were 5,559 bankrupts with KiwiSaver accounts all up worth $27.3 million, with an average value of each of around $6,070, the Assignee told the Court of Appeal last month. Of those bankrupts, 58 percent with a KiwiSaver account were under 50 years of age, meaning if the High Court judgement stood, the debt-collector would be waiting at least 15 years before it could claw back money due to creditors.

The Court of Appeal found if creditors could access KiwiSaver funds, the "burden for providing for the welfare of individuals would fall back on the state."

"The objective of the KSA (KiwiSaver Act 2006) is to encourage long-term savings habit and the accumulation of funds that will increase the wellbeing and financial independence of individuals, particularly in retirement," the Court of Appeal judgement found. "There is nothing in the KSA to suggest that a purpose of the legislation is to accumulate funds for the benefit of creditors in the event of the member's bankruptcy."

The Court of Appeal Justices were not satisfied that the Assignee was entitled to trigger the early withdrawal provisions and claim significant financial hardship, nor that KiwiSaver funds fell under the Official Assignee's mandate.

BusinessDesk.co.nz

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