Court actions filed by the Australian Taxation Office and the big four banks are on the rise, with many commentators suggesting a wave of insolvencies is on the way.
Credit reports indicate that court activity initiated by the ATO in October 2023 increased significantly, with winding-up applications and bankruptcy petitions both at their highest monthly level since 2019.
Legacy debts are now being pursued by the ATO, which will see more companies wound-up and directors becoming personally at risk. As the GM Advisory statistics show, Small Business Restructuring (SBR) appointments are consistently rising as business owners look for ways to keep their businesses afloat by compromising their liabilities with the ATO.
“It is not a strategy to bury your head in the sand” said director of GM Advisory, Ginette Muller. “The ATO wants directors to acknowledge their situation and address the issue of whether the business is viable or not. Businesses are allowed to fail and the ATO has reportedly acknowledged that failure with dignity is something they support. Equally, if the business is viable and just needs some interim relief then that is also something that can be addressed with the ATO and other creditors – particularly if the company in question is prepared to be honest and transparent”.
It is important to note that the directors can be held personally liable for corporate debts.
- where the ATO issues Director Penalty Notices (the DPN regime). A DPN is given when the ATO can estimate a company’s debts for PAYG Tax, GST and superannuation and the Company is put on notice to pay that debt, and it does not;
- where the company has traded while insolvent; and
- where the director has given guarantees for the company’s liabilities.
Reports indicated that of the $45 billion of collectable debt owed by all businesses, small businesses continue to be over-represented, owing more than $33 billion.
Time for a review. Time for a reset.