Bankrupts: CPF inheritance goes first to...

IF A person wills his Central Provident Fund (CPF) money to a bankrupt, the funds will be channelled towards settling the bankrupt's debts when the CPF account holder dies.

Any money left after paying off creditors will be held in trust, that is, managed on behalf of the bankrupt, the Court of Appeal has ruled.

The highest court in the land also ruled that if information on the bequeathed sum comes to light after the bankrupt is discharged from his debts, the money still has to go to the Official Assignee (OA), who will hold it in trust.

These definitive rulings were made by the Court of Appeal in a judgment released last week, after a test case in which a discharged bankrupt sought to keep $102,000 left to her by her late sister in CPF money and SingTel shares.

Lawyers say the rulings underscore the need for CPF account holders to pick their nominees carefully, since funds meant as bequests to nominees who are bankrupts will go to creditors instead.

In the test case which led to the rulings, Madam Lim Lye Kiang was a bankrupt when her sister Lye Keow died of cancer in March 2008. Madam Lim, 52, a kitchen helper, had been a bankrupt for 11 years, owing $1.18 million to 13 creditors.

Under the law, all assets belonging to a bankrupt are held by the OA for distribution to his creditors. Hence, when Madam Lim Lye Keow died, the CPF money she bequeathed to her sister should have been transferred to the OA.

But the OA was unaware of the bequest. In October 2009, the OA sought a court order to discharge or release the bankrupt Madam Lim Lye Kiang from her debts on the basis that she had been bankrupt for more than a decade, and had made monthly contributions of up to $150 to her bankruptcy estate.

She also had no further realisable estate.

After her creditors each got $11,664 in a final dividend declared by the OA, she was discharged in November 2009.

Two months after this, when she sought to claim the $102,000 from CPF which her late sister had left her, the CPF Board transferred the money to the OA.

The OA then applied to the court for an order to distribute the money among Madam Lim's creditors.

In October last year, the High Court agreed with the OA and rejected Madam Lim's argument that since the CPF authorised the release of the money after she had been discharged from bankruptcy, the money belonged to her.

The judge also held that the protection extended to the money of CPF account holders did not extend to nominees like Madam Lim, and that the money could thus go to the OA to settle debts.

Madam Lim appealed and the appeal court ruled that the money had to go to the OA because she was a bankrupt at the time of her sister's death. Her lawyer Foo Soon Yien argued that her discharge from bankruptcy had the effect of revesting the entitlement to the money in her.

The Court of Appeal rejected this, agreeing with the OA's lawyer Lim Yew Jin that the discharge did not reinstate Madam Lim's right to the money.

The court, comprising Judges of Appeal Chao Hick Tin, Andrew Phang and V. K. Rajah, held that bankruptcy laws make plain that the administration of a bankrupt's estate may continue after his discharge, as in this case.

It said the OA may have decided that a bankrupt was deserving of discharge, but may not necessarily by then have completed distributing the bankrupt's assets.

The bankrupt's discharge releases him from debts, and does not affect the debts themselves, said the court, so assets which come to light after a final dividend is paid to creditors will be held by the OA in trust for the discharged bankrupt.

It falls to the ex-bankrupt to apply to the OA to ask that the assets be revested in him; he may appeal to the courts if the OA rejects his request or sets conditions.

The CPF Board said a year ago that a CPF member does not need to make a nomination if he wishes to distribute his CPF savings under the intestacy laws.

'When making a nomination, he should consider who is to receive his CPF savings and how much each nominee should receive, taking into account family and other circumstances,' CPF said.