Changes to limited recourse borrowings by superannuation trustees

A bill to amend the Superannuation Industry (Supervision) Act 1993 has been introduced into Parliament. The Bill is designed to reduce the risks for superannuation funds investing in limited recourse borrowing arrangements. It replaces the existing section 67(4A) exemption from the anti-borrowing rule for superannuation trustees with new rules.

The new rules seek to ensure that:

• the lender, or any other person (for example a guarantor), only has limited rights relating to the “acquirable asset”
• the asset may only be replaced in certain prescribed circumstances that arise from owning the original asset, and
• the borrowing is referable and identifiable only over a single asset (excluding money) or in prescribed circumstances, a collection of assets which are identical and are treated as a single asset (for example shares in a company or units in a listed trust).

Some background

According to the government “market developments have led to practices that raise prudential concerns with the use of such limited recourse borrowing arrangements by superannuation funds” since the introduction of the exemption in 2007.  Some of the government’s concerns include:

• the use of personal guarantees by lenders to cover their risk and the guarantors then seeking a indemnity from the RSF trustee
• security arrangements over multiple assets which may allow the lender to choose which assets are sold if there is a default on the loan, and
• replacement of the security assets at the discretion of the trustee or the lender.

Further information

Should you require any further information please feel free to contact Hadyn Oriti
horiti@dohlaw.com.au