Collapses set to rise as ATO starts chasing debts and winding up companies

Insolvency experts say the Australian Taxation Office is once again aggressively chasing debts as the economy recovers, and warns this crackdown may result in a spike in company collapses.

Despite insolvency numbers being down in April, experts warn that the Australian Tax Office’s toughening approach may lead to more and more SME’s going broke.

Recent statistics from the Australian Securities and Investments Commission (ASIC) show the number of companies going into administration fell 18% in April to 737 (down from 904 in March), insolvency practitioners are seeing signs that the ATO is taking a much more aggressive approach to chasing debts.

Jim Downey, principal of JP Downey sees evidence of a tougher stance from the taxman.

“Anecdotally I have heard that the ATO, while it was being tolerant during GFC, is being less tolerant now,” he says. “And that is evident from the number of winding up petitions being advertised in the daily papers.”

“This suggests to me that the holiday may be over,” he says. “There were five petitions in the paper today. In the last few weeks they have become more common. We haven’t seen those sorts of numbers for awhile.”

“The ATO is typically the single most common and largest creditor,” Downey says. “By their very nature they are a creditor of just about any business. Unscrupulous directors use them as the lender of first resort and this often lands them in trouble as that debt grows.”

During the global financial crisis, the ATO softened its approach and gave some leniency to small businesses; in late 2008 and early 2009 many companies negotiated payment plans with the ATO for 12 months.

But it appears this generous stance is coming to an end, according to Cliff Sanderson, head of Restructuring Works.

“The ATO is definitely taking a more aggressive approach this calendar year,” he says.

“We know that there are an awful lot of companies that went onto repayments schemes and some are defaulting. We are expecting more and more insolvencies,” he says.

“But we have expected a larger increase and the ATO are still going softly, softly… so there’s a long way to go.”

But Sanderson says it’s not just the ATO that is driving companies into administration.

“The Tax Office as a rule is the most common plaintiff in winding companies up – they’re always there,” he says. “

“But the some of the ones we’re seeing are not due to the ATO. In some cases it’s due to a multitude of other creditors who are owed money and the directors are finally doing something about it.”