Most Read Contributor in New Zealand, September 2016
A bankrupt's KiwiSaver account balance is off limits
to the Official Assignee. Even if it were not, the Official
Assignee could not use the bankruptcy to invoke the hardship-based
early withdrawal provisions in the KiwiSaver Act 2006.
This is the effect of a Court of Appeal judgment,
delivered on Friday. Although justifiable in policy terms, the
decision raises issues about the appropriate balance between
promoting retirement savings and protecting creditor
The judgment1 has significant ramifications. In
January this year there were 5,559 bankrupts with KiwiSaver
accounts totalling over $27.3 million and, as KiwiSaver itself
grows, that number can only continue growing.
Two issues were before the Court:
whether the Insolvency Act 2006 entitles the Official Assignee
(OA) to access KiwiSaver balances or is 'trumped' by the
prohibition on assignments in the KiwiSaver Act 2006 (KSA),
whether bankruptcy automatically satisfies the 'significant
financial hardship' test in the KiwiSaver Scheme Rules, thus
allowing an early withdrawal of KiwiSaver funds.
The Court of Appeal's response to both questions was
'no' - overturning earlier findings by the High Court that
KiwiSaver balances were automatically assigned to the OA on the
bankruptcy of a member.2
The Court of Appeal noted that, although the Insolvency Act and
the KSA received the Royal Assent within two months of each other
'neither refers to the other in any material
Relevant to its decision on question one was the emphatic
wording of section 127 of the KSA. This provides that a
member's interests 'must not be assigned or charged or
passed to any other person whether by way of security, operation of
law or any other means'.
This absolute prohibition is tempered where assignment is
required by any other enactment. However, the Court drew from the
emphatic language of section 127 the following gloss on the
interpretation of the assignment provisions:
"divestment of a
member's KiwiSaver interest is not "required by the
provisions of any enactment" in terms of s 127(2) unless the
enactment expressly provides for the vesting in a third party of
the member's interest in a KiwiSaver scheme" .
As the vesting provisions in the Insolvency Act are stated in
general terms, and do not expressly require the vesting in the OA
of a member's interest in a KiwiSaver scheme, the Court took
the view that:
members' interests are not 'required' to pass to
the OA in terms of the KSA, and
therefore the KSA prohibits such assignments.
The Court reached the same conclusion in respect of any KSA
funds accumulating for the benefit of a member during bankruptcy,
drawing support for this from the example given in the KSA of an
exception to the prohibition on assignment - a Court order under
the Property (Relationships) Act 1976. That Act expressly enables
the Court to make orders in relation to a 'superannuation
The Court also had regard to the KSA's purpose statement to
encourage a long-term savings habit and the accumulation of funds
to provide for security in retirement:
"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. If that were the case, the important social and
economic purposes of the KSA would be undermined and the burden of
providing for the welfare of individuals would fall back on the
The Court of Appeal confirmed the findings of the High Court
that bankruptcy does not automatically result in members suffering
financial hardship in terms of the KSA.
So where does this leave creditors – Chapman Tripp
commented on the High Court ruling that it was an
unsatisfactory outcome which required a legislative fix. We now
have clarity around the legal position, but some of the policy
implications are less clear.
If the OA is unable to access KiwiSaver balances on the
bankruptcy of members, what - if anything - can creditors do about
additional payments made into a KiwiSaver scheme by a debtor who is
on the cusp of bankruptcy?
A member's creditors, or the OA, may be able to seek a Court
order under the Property Law Act 2007 requiring the contributions
to be repaid. Whether such claims would succeed in practice is
unclear, however. KiwiSaver contributions are not a good conceptual
fit for the grounds on which a creditor could apply for this kind
The Court's finding is quite mainstream in international
terms – both Australia and the UK for example also generally
protect retirement savings funds in bankruptcy. But those
jurisdictions do have voidable transactions provisions alongside
While the law is clear for now, and clarity is helpful for the
industry, this is a topic on which a deliberate policy discussion
should be had.
There may also be a question mark now over any KiwiSaver
balances which the OA was able to access prior to this decision. Is
anyone liable to the affected members?
1Trustees Executors Limited v The
Official Assignee CA206/2014  NZCA 118, 17 April
2Official Assignee v Trustees Executors
Ltd  NZHC 345
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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As a demonstration of India's combined political will, the much awaited and debated Insolvency and Bankruptcy Code, 2016 was passed by the Upper House of the Parliament on 11 May 2016 (shortly after being passed by the Lower House on 5 May 2016).
The Code envisages that the insolvency resolution processes will be conducted by insolvency professionals.
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