Australia: Decision on Surplus Distribution: Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd

Last Updated: 1 June 2006
Article by Michael Vrisakis

A recent decision of the Supreme Court of Victoria1 sheds some light on some key issues for superannuation trustees. The background to the case is as follows.

An actuarial review of the Invensys Australia Superannuation Fund showed it to be in surplus to the tune of $189.2 million. In mid 2003, the Invensys Group proposed to the trustee that the surplus be repatriated to the principal employer in the group. The trustee rejected that proposal. After discussions between the trustee and the principal employer, a new proposal for the distribution of the surplus was agreed.

Following that agreement, the trustee sought orders of the court (in summary) to distribute $85.8 million of that surplus ($36 million to members and $49.8 million to the principal employer).

The fund represented an amalgam of a large number of superannuation funds which were transferred into the fund arising from acquisitions by the BTR Nylex Group. When corporate divestments occurred and employees were transferred out, considerable surplus remained in the fund. The surplus had been used to fund an employer contribution holiday as well as to pay certain taxes.

It was possible for former employees of participating employers to remain members of the fund. The definition of ‘member’ in the trust deed included persons who had not been paid their full benefit. The trustee’s proposal for the distribution of surplus included a distribution to former members, namely persons who were members on or after the ‘cut-off date’ (30 June 2003) but who ceased to be members by the ‘scheme date’ (when the proposal was to come into effect). The cut-off date was proposed on the basis that members who had had their benefits paid before that date would not be eligible to participate in surplus.

The trustee’s proposal involved surplus being applied as a top-up benefit when the ordinary benefits of members became payable.

The various parties represented in the proceeding comprised:

  1. the first defendant, Austrac Investments Limited, the principal employer representing all nine participating employees
  2. the second defendant representing all defined benefit members
  3. the third defendant representing all members other than defined benefit members
  4. the fourth defendant representing former members who were members on or after the cut-off date but before the scheme date
  5. the fifth defendant representing those persons who arguably had an interest in taking a share of the surplus but who were not participating. These persons included members before the cut-off date, members after the scheme date, former contributing employers, trustees of transferor and transferee funds and the Crown.

The orders sought were that the court:

  • make a declaration as to the power of the trustee to amend the trust deed to give effect to the scheme for the distribution of the surplus, and
  • approve the trustee executing the amending deed and implementing the scheme.

The ‘sole purpose’ issue

The issue of whether a distribution to former members would contravene the so-called ‘sole purpose’ test in section 62 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), and in particular whether ‘member’ included ‘former members’ was considered.

It is not entirely clear whether Justice Byrne finds that the term ‘member’ when used in section 62 of the SIS Act includes a former member generally or simply that former members of the fund could be treated as members.

Other limits on the amendment power

The trust deed amendment power contained a number of restrictions. One such restriction was that the amendment not ‘adversely alter a benefit entitlement’ if this would be contrary to the ‘applicable requirements’ (which, for present purposes, was the SIS Act and regulations). This point was not contested by the parties.

Another related issue raised was whether a previous qualification that an amendment should not affect ‘benefits already secured’ was still applicable. Again Justice Byrne did not need to consider this issue.

Key points to note

Implied duties of trustee

His Honour reiterated the relevant judicial criteria in this regard and observes that:

… the Trustee should exercise the power (of amendment) in good faith and that the Trustee should act in a way which appears to it fair and equitable in the circumstances and in accordance with the purposes for which the power was conferred. (at paragraph 62) (footnotes excluded)

Trustee exercise of discretion

The trustee properly exercised its discretion as to the basis of division of the surplus in the sense that it had regard to all of the matters which it was required to have regard to and did not have regard to any extraneous matters. It dealt with the employers on an arm’s length basis and consulted with all interested parties.

In these circumstances Justice Byrne noted that:

The duty of the Trustee is to make these hard decisions and the Court will interfere with them only in limited cases. (at paragraph 63)
The Court does not interfere with the lawful exercise of a discretion by the Trustee. (at paragraph 65)
These are matters for the judgment of the Trustee and, absent some other vitiating factor, it is beside the point that another person acting reasonably might have reached a different conclusion. (at paragraph 67)

The sole purpose test

In this case, the amendment power could be exercised retrospectively and on one view Justice Byrne’s finding might be that people who were former members as at the scheme date, but members as at the cut-off date, are members at the relevant time. This proposition seems true but Justice Byrne does not appear to express a view on this (see paragraph 58).

Justice Byrne may be saying that the requirements of section 62 of the SIS Act allowing payments to members includes within its ambit payments to former members. If this is the point made, this seems, with respect, too wide. It is submitted that the term ‘member’ in section 62 encompasses persons who have a contingent entitlement to benefits and that it is not necessary to extend the concept of member in section 62 to include former members.

It appears that Justice Byrne may well be simply saying that the term ‘member’ in SIS is not defined and its meaning depends on the trust deed of the particular fund (see paragraph 51). In this case former members were held to be members (paragraph 55).

Entitlement of former employers

While the proposition that surplus can be held on a resulting trust for former employers was not in any way rejected, in the present case it was not possible to conclude that the surplus was attributable to former employers.

Distribution to accumulation members

Justice Byrne noted that there was no legal impediment to distributing surplus among accumulation members as well as defined benefit members.


1. Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd [2006] VSC 112.

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