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ARTICLE · 05 DECEMBER 2008

Instalment Warrant Trust – Limited Recourse Loan

Cooper Grace Ward
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The Superannuation Industry (Supervision) Act allows a superannuation fund to borrow to purchase an asset on trust (instalment warrant trust) provided section 67(4A) is complied with.

AustraliaFinance and Banking
Greg Cahill
Greg Cahill
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The Superannuation Industry (Supervision) Act (SIS Act) allows a superannuation fund to borrow to purchase an asset on trust (instalment warrant trust) provided section 67(4A) is complied with.

However, section 67(4A) only allows a trustee to take out a non-recourse loan. That is, the lender's right of recourse pursuant to the loan documentation must be limited to a right to exercise a power of sale of the property (section 67(4A)(d) of the SIS Act).

If the lender reserves the right to take action against the trustee of the superannuation fund, the loan will not satisfy the requirements of the section.

The standard documents used by one of the major banks (and possibly others) provide that the bank can take action against the trustees of the superannuation fund in limited circumstances (e.g. cases of fraud or misrepresentation).

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