Burying
treasure in Kiwisaver accounts safe from creditors is becoming an issue with
over twenty million dollars held in bankrupts’ Kiwisaver accounts. The High Court ruled bankruptcy creditors can
get payment should an undischarged bankrupt die.
In 2015, the Court of
Appeal decided Kiwisaver accounts could not be used to pay pre-bankruptcy debts. Two years on, Insolvency Service figures show
there are some 3400 undischarged bankrupts with Kiwisaver accounts. Eight bankrupts have balances exceeding
$50,000. The highest known balance held
by an individual bankrupt is $102,300.
These balances survive bankruptcy.
Usually, a bankrupt is automatically discharged from bankruptcy after
three years. All pre-bankruptcy debts
are cancelled.
Following a test case,
the High Court ruled the Insolvency Service has no direct claim against the
Kiwisaver account of any bankrupt who dies before discharge. But the executor of a deceased bankrupt’s
estate has an obligation to collect in Kiwisaver funds. Justice Gordon ruled these funds are to be
used to pay all debts: both pre-bankruptcy debts and debts incurred
subsequently. Executors delaying
collection of Kiwisaver funds until after operation of an automatic three year discharge
would be in breach of both public policy and duties as an executor, she
said. Deliberate delay has the effect of
benefitting estate beneficiaries over pre-bankruptcy creditors.
Re
Hargraves – High Court (9.05.17)
17.041