Retirement income entities - Contravention of covenant.

Is the Commissioner able to take action in relation to a reported contravention, by the trustee of a self managed superannuation fund, of a covenant referred to in subsection 52(1) of the Superannuation Industry (Supervision) Act 1993 (SISA)?

No. The Commissioner is not empowered under the SISA to take any action in respect of a contravention of a covenant referred to in subsection 52(1) of the SISA.

A member of a self managed superannuation fund has applied to the trustees for the release of benefits under the financial hardship provisions of the SISA. The trustees have approved the release of benefits. The member alleges that the trustees have not paid out the benefit, instead using the money for their own personal use.

Section 52 of the SISA sets out certain covenants which are taken to be included in the governing rules of a superannuation entity. The covenants listed in subsection 52(2) of the SISA include, at paragraph 52(2)(c), 'to ensure that the trustee's duties and powers are performed and exercised in the best interests of the beneficiaries'. The withholding of a benefit properly payable to a member contravenes this covenant.

Subsection 55(1) of the SISA prohibits a person from contravening a covenant contained, or taken to be contained, in the governing rules of a superannuation entity. Subsection 55(2) of the SISA states that a contravention of subsection (1) is not an offence.

However, subsection 55(3) of the SISA provides that a person who suffers loss or damage as a result of conduct of another person that was engaged in a contravention of subsection 55(1) of the SISA may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

Where an alleged contravention of subsection 55(1) of the SISA occurs, the SISA provides a mechanism for the person affected by the contravention to pursue legal action against the person involved in the contravention in order to recover the amount of the loss or damage incurred. Under the SISA, the Commissioner has no power to take action in relation to a contravention of a covenant listed in section 52 of the SISA.