The
Insolvency Service cannot seize Kiwisaver contributions to pay creditors should
any member of a KiwiSaver scheme become bankrupt, the Court of Appeal ruled in
a landmark decision.
The KiwiSaver Act makes no specific mention of
what should happen to contributor balances on bankruptcy. The Court of Appeal ruled that the flavour of
the Act is to lock savings in until retirement and that the specific rules
governing early withdrawal do not cover circumstances of bankruptcy.
Evidence was given that as at January 2015 there
were just over 5500 bankrupts with Kiwisaver balances totalling $27.3
million. The majority of these bankrupts
are under 50 years of age.
A test case was taken to determine how
insolvency law applies to Kiwisaver accounts.
The Insolvency Service argued a bankrupt’s member contributions are
“property” which could be used to pay the bankrupt’s creditors. Government contributions including the $1000
kick-start payment and tax credits were not being claimed by the Insolvency
Service.
The Court said KiwiSaver legislation prohibits
the transfer of a contributor’s balance unless expressly provided by the
KiwiSaver Act and nowhere does the Act expressly allow a transfer to the
Insolvency Service on bankruptcy.
The Court further said the early withdrawal
provisions in the Act do not apply on bankruptcy. Financial hardship is a ground for early
withdrawal. The Court of Appeal said
early withdrawal by a bankrupt does not alleviate the bankrupt from financial
hardship, it alleviates hardship suffered by the bankrupt’s creditors.
Trustees
Executors v. Official Assignee – Court of Appeal (17.4.15)
15.031