As we discussed in our previous post, the COVID-19 pandemic put a hold on the ATO’s debt recovery processes, to assist businesses dealing with other creditors, amongst other reasons.
The result of reduction in activity meant that, as of 30 June 2021, the debt owing to the ATO had increased to a whopping $55 billion. To combat this, the ATO announced in November 2021 that it will implement a “tailored approach” in its debt recovery.
In order to recover this debt, the ATO has been issuing Director Penalty Notices (DPNs) at an unprecedented rate following the COVID-19 offset.
In our last blog we looked at what a DPN is and the different types including “Lockdown” and “Non-Lockdown” DPNs
Moving forward
With over 52,000 warning letters dispatched in April 2022 alone, and over 40 DPNs issued daily, the ATO’s debt recovery process has well and truly begun. The ATO also expects a huge rise in the number of insolvencies in the coming months.
What does this mean for businesses?
In this blog post we look at what this increase in activity means for the insolvency industry and the broader economy. The ATO has historically been one of the most common creditors in a business collapse. It confirmed it had increased its collection activity in the past two months.
We are of the view that ATO recovery drives the insolvency market. By collecting debt, it forces directors to speak to experts such as Roser Lawyers or other insolvency practitioners. This in turn increases insolvency appointments which ultimately has a huge impact on the industry, creating more work for insolvency lawyers and other stakeholders.
We have asked two of Australia’s leading insolvency experts, including Andrew Barnden of Rodgers Reidy and Richard Stone from RSM, to share with us their insights as to the new strategy from the ATO…
Mr Barnden said: As the economy re-emerges from the pandemic, the ATO has re- commenced its collection process to reduce this mountain of taxation debt (and to pay off some of the monies borrowed during the past 2 years to keep the economy afloat). This will see business who aren’t making a profit and/or who haven’t dealt with their ATO debt at risk of being placed into external administration, which will have a flow on effect to the broader economy.
Insolvency appointments
“Insolvency appointments over the past 2 years are over 50% below the yearly average, largely due to the temporary changes in the law and the soft approach taken by the ATO. Prior to 2020, the ATO was the largest single creditor forcing companies into external administration, either directly through the court system, or indirectly through its compliance program. The ATO has publicly stated that it is now re-commencing its collection processes to that of pre-COVID levels, which will mean those that have not managed their taxation debt will be under scrutiny.”
Richard Stone of RSM Partners had this to say regarding the possible impacts:
“The Australian economy has been propped up by Federal and State stimulus measures which when combined with historically low interest rates has created a false economy full of ‘zombie companies’”.
What does Mr Stone think is in the pipline?
“DPN’s alone will not resolve the zombie company phenomena, the ATO must return to normalised debt collection practices by issuing statutory demands, creditors’ petitions and winding up notices”.
Any advice?
“The outstanding debts owed to the ATO are in excess of $50B, the new labor government has a significant task of balancing the budget and will be looking to increase recovery of outstanding taxes owed to the ATO. As sure as night follows day, if you have an outstanding debt to the ATO, it will have to be dealt with. The sooner directors take advice regarding their options the more likely their business can be restructured and continue in the post pandemic era”.
Advice we, at Roser Lawyers, would give directors who receive a DPN
Director’s need to be pro-active in seeking professional advice as there are strict time compliance periods to adhered to in respect to legal enforcement documents issued by the ATO, especially Director Penalty Notices. Failure to do so may lead to severe financial impacts on directors personally.
However, there are several options available to directors of companies in financial difficulties, including the relatively new Small Business Restructuring Regime introduced during COVID-19, which in my experience has seen the ATO accept suitable proposals offering a dividend to the ATO of between 20 to 35 cents in the dollar.
Seeking appropriate advice and having the benefits of each option clearly explained, together with ensuring that the company meets any pre-requisite conditions is the key to allow directors to make an informed and commercial decision to effectively deal with its ATO liability.
We regularly provide expert advice to clients dealing with multi-million-dollar penalties, as well as smaller more manageable debts. Given the strict time-period associated with the DPN, please do not hesitate to contact Roser Lawyers for a confidential consultation regarding your situation.