Tidbits from the Transcripts - construction inquiry to receive list of suspect liquidators

Senator Doug Cameron will soon have a list of liquidators
connected to repeated construction sector failures.

A list of liquidators of interest is to be delivered to the Senate References Committee's inquiry into insolvency in the construction industry.

At the inquiry's final public hearing in Canberra, senior officials from the Department of Employment told chief inquisitor Senator Doug Cameron how as part of administering the Fair Entitlements Guarantee scheme (FEG), they gathered intelligence about individuals who preside over entities which repeatedly collapse with insufficient assets to pay employee entitlements.

Included in that intelligence are the names of those liquidators who consistently appear as the suspect directors' preferred appointees.

"Every six months FEG provides a list of data to ASIC that includes the case names, the amounts paid, the directors' names and the liquidator's names," FEG branch manager Sue Saunders told the inquiry.

"Every six months we provide data to the ATO that is more specific to the phoenixing agenda in the sense that it provides the names of every case and every director where the same director has been listed for more than one case under FEG.

"The information we gather about the cases that become insolvent and leave unpaid employee entitlements to be met under GEERS or FEG is useful intelligence to feed into the other range of information the ATO and ASIC are collecting that builds their risk profile around certain operators in the industry," Saunders said.

Tidbits from the transcripts - Cameron slams liquidators at construction inquiry

Labor Senator Doug Cameron

IT is SiN's opinion that the term 'farcical' might just creep into the general discourse around a senate inquiry when much of a session is dominated by the inquiry's architect busting attendee's testicles.

The session in question took place when the Senate Economics References Committee's Inquiry into Insolvency in the Construction Industry rolled into Sydney recently.

Leftwing Senator and unionist Doug Cameron, who is driving the inquiry, did the busting; Senator Sam Dastyari acquitted himself as chairman except when walking around with his shirt hanging out discussing travel arrangements with staff; South Australian Senator Sean Edwards mostly listened and Senator John 'Wacka' Williams didn't show.

Those subjected to Cameron's McCarthyist fervour included a pair of execs from credit reference agency Veda Advantage, the chief executive of the Australian Restructuring Insolvency and Turnaround Association (ARITA) and various commissioners and deputies from the Australian Securities and Investments Commission (ASIC) and the Australian Tax Office (ATO).

The inquiry is focussed on addressing phoenix activity in the construction sector, which has been estimated to cost the economy as much as $3 billion annually and Cameron told ARITA chief executive John Winter that liquidators are a big part of the problem.

ATO wind-ups near record in September

Chart courtesy Insolvency Notices

THE taxperson's new found enthusiasm for pursuing inveterate non-payers continues to impress. Figures obtained from Insolvency Notices reveal that the Australian Taxation Office (ATO) initiated 568 wind-up applications during September, strengthening expectations that this year's sharp lift in legal action to force companies to liquidate or comply, will endure.

September's number was second only to the record 582 wind-ups filed by the ATO in May and far exceeds the 92 per month long term average. However with approximately $20 billion in outstanding tax debt owed by small and medium sized enterprises (SMEs), much of it now shifting to a more mature tier of arrears, the real question is: Why hasn't the ATO acted earlier?

Perhaps it was waiting for more robust economic growth? Hypothetically, a buoyant economy absorbs increased debt collection and liquidations without missing a step. Higher turnover may even spur growth.

But if that was what was keeping the tax collectors on a short leash then the decision earlier this year to stop treating SMEs like infants and instead enforce the law may have been triggered by a very different theory, one based on expectations of recession. Not that the ATO is likely to admit to that.

It will however admit that the increased rate of wind-ups is off a very low base. It will also point out that approximately half of the applications never proceed to winding up. And that perhaps is the most beneficial consequence of this new willingness to act. When faced with the genuine threat of liquidation, recalcitrants often discover money. And the burden on the compliant is lessened, albeit imperceptibly.

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More assertive ATO good for insolvency professionals as wind-ups jump in August

ATO-initiated wind-up activity
from March to August, 2015
Chart courtesy Insolvency Notices

ANY thought that the Australian Tax Office (ATO) might begin reducing the number of wind-up applications it's been lodging since it set a new monthly record of 582 wind-ups last May has been dispelled by the August numbers, which show the tax man sought to appoint liquidators to 488 companies last month.

This is almost 100 more than the number lodged in July and also exceeds the June figure of 449 wind-ups lodged. The long term average for ATO-initiated wind-ups of companies with unpaid tax debts is 92 per month.

In a statement the tax office confirmed it had adopted a more active policy on debt recovery, an essential change one would've thought given there's approximately $20 billion of recoverable debt on the ATO's books. More than 60 per cent of the arrears is owed by small to medium-sized enterprises (SMEs).

"The ATO is focused on making it as easy as possible for businesses, and other taxpayers, to understand and meet their tax obligations," the ATO said.

"As the Commissioner said during his address to the National Small Business Summit on 16 July, our intention is to be more active to prevent debts, to provide appropriate help and support when people are in debt, to take the right action to prevent debts from escalating, and to take legal action earlier when it is warranted."

Michael McCann, president of the Australian Restructuring Insolvency & Turnaround Association (ARITA) said there is no doubt the ATO has taken a more assertive stance. The question is whether it is a temporary measure to deal with a back log or is to be sustained.

"If there is in fact a catch-up that's one thing but if there is actually a sustained program by the ATO of being more assertive that would suggest that it is going to be acting earlier," McCann said.

Shrinking insolvency division no threat to supervision: ASIC

Ex-ASIC insolvency team
member John Laird  

THE corporate regulator has rejected suggestions that its capacity to police the insolvency profession is diminishing, despite the departure of two senior insolvency team members in recent months and an almost 20 per cent reduction in insolvency division staff since 2011.

Neither John Laird or Marc Robinson would comment on their departures from the Australian Securities and Investments Commission's (ASIC) insolvency unit when contacted this week. Laird invoked confidentiality constraints. Robinson did not respond to a request for comment.

Sources told SiN that Laird, who according to his Linked In profile led the unit's investigations on major corporate collapses, is setting up his own consultancy.

Robinson, a senior insolvency specialist, is said to be headed to the Australian Tax Office (ATO) to work as a law interpretation specialist on its cross-agency task force combatting illegal phoenix activity.

If the most recent figures are accurate, the departures of Robinson and Laird leave ASIC with 21 insolvency team members monitoring almost 700 registered liquidators. That's about 33 liquidators per staffer and is representative of a trend of declining staff numbers within the division charged with the supervision of registered insolvency practitioners.

ASIC's 2010/11 annual report stated that there were 28 insolvency division staff regulating 670 registered liquidators. In 2011/12, staff numbers were reported as 24. Liquidator numbers meanwhile had risen to 680.

ATO wind-ups: elevated recoveries continuing

ATO wind-up activity persists
at record levels.
Chart courtesy Insolvency Notices

IS 400 wind-up applications per month the tax office's new normal? It's looking that way after the numbers for July, collated by Insolvency Notices, were published yesterday.

As the attached chart indicates, wind-up applications filed by the Australian Taxation Office (ATO) came in at around 400 in July, lower than the previous two months but still well above the long term monthly average of 92. Not that this should surprise anybody given the crackdown was flagged by the tax commissioner, Chris Jordan back in May, when a record 556 wind-up applications were lodged.

"While the majority of taxpayers voluntarily pay their taxes on time or soon after, collecting outstanding taxes is an ongoing challenge for us. Despite our increased efforts, the amount of debt we have to collect has continued to rise in recent years," Jordan said in a speech to the Tax Institute on May 19, 2015.

"We will be taking legal action earlier when warranted, initiating bankruptcy and wind-up action where there is evidence that a taxpayer is insolvent, and looking to use other statutory powers where businesses have failed to pay employee superannuation entitlements or pay amounts held in trust," he said.

Jordan's comments were backed up by deputy-commissioner Cheryl-Lea Field, who said that about half of the companies subjected to an ATO-initiated wind-up notice would proceed to liquidation. And each month since has confirmed that tax debt recovery activity is persisting at historically elevated levels.

After the surge in wind-ups lodged in May - which coincided with a supposedly pro-SME Federal budget - the June number dipped to around 450. But when added to July's numbers they reveal that the ATO has initiated around 1,400 proceedings against SMEs in three months. By comparison it lodged 1,333 winding up applications for the entire year in 2013/14. August meanwhile is on track to record another 400-plus figure.

Given SMEs account for around 60 per cent of the more than $20 billion in collectable tax debt, it might take the ATO some time to make a dent in the arrears, even at 400 per month. That said, a Federal election is due no later than January, 2017, so this more vigorous and comminatory ATO may well assume an altogether gentler demeanour over the next 17 months. 400 per month may in time appear an aberration. Only the opinion polls know.

Chart courtesy Insolvency Notices

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Tax Commissioner continues campaign against rogue SMEs

Recent ATO winding up activity
Chart courtesy Insolvency Notices

THE Commissioner of Taxation's campaign to cull recalcitrant non-compliance from the Small-to-Medium Enterprise sector (SME) is continuing at near record levels, with more than 450 company winding up applications lodged with the courts in June.

While less than the record 556 wind-ups filed in May, the June numbers still dwarfed the ATO's previous monthly record of 361 applications - filed in August 2013 - and take total winding up applications initiated by the ATO to more than 1100 in two months. Prior to May 2015, the ATO's monthly average was 92.

"The activity by the ATO is still very substantial," said Jamieson Louttit, who produces analysis based on insolvency notices lodged with the Australian Securities and Investments Commission (ASIC).

"They are way higher than average and I do think it's reflective of the Government being short of cash," he said. "While the ATO winding up notices have come off a bit, there's still significant pressure being applied by the ATO issuing director penalty notices (DPN) and garnishee notices," Louttit said, though he had no hard numbers for DPNs and other actions at the sharp end of enforcement.

"They are not published anywhere," he said. "I tried Freedom of Information and was told I'm wasting my time."

The ATO declined to provide specifics on DPNs and garnishee orders when contacted by SiN. "In 2014-15, we supported small businesses by providing over 500,000 payment arrangements that allowed them to manage their tax debts," the regulator said.

"During the year, there were about 1,000 ATO-initiated small business wind-ups, however, we did have a greater focus on legal action in the second half of the 2014/15 year and filed about 1200 wind up actions in this period."

Debt fossilising as Australia ages

Personal insolvency professionals will have to
develop strategies for dealing with ageing debtors

THE latest statistics on bankruptcy suggest that relatively speaking, its smooth sailing. Squalls may loom but they've yet to manifest in the numbers published this week by the Australian Financial Security Authority (AFSA).

Personal insolvencies were down in 2014/15, an overall drop of 4.2 per cent. There were 7.7 per cent fewer bankruptcies and only negligible increases in debt and personal insolvency agreements. On seeing AFSA's stats, trustees in bankruptcy would've slept untroubled by concerns about whether they have sufficient staff.

There is another issue on the insolvency horizon though, one more complex and challenging than a scarcity of appointments or uncertain economic cycles, and that is the increasing age of bankrupts and the maturing of their debts.

AFSA touched on the issue in May. In its report - Ages of bankrupts since 2008 - the regulator detailed how the "most common age" of bankrupts rose from 37 in 2008 to 43 in 2014. 

"Where we could identify the age of bankrupts .... (T)he proportion of bankrupts aged between 50 and 64 years increased from 22% in 2008 to 26% in 2014," AFSA said.

"There were increases in all age groups in this range. The largest increase was in bankrupts aged between 50 and 54 years."

From 22 per cent to 26 per cent represents an increase of 18 per cent in six years. Within this age group are many preparing for retirement. How bankrupts within this group endure their three years shackled to a trustee will contribute to trends in bankruptcy as the overall population ages.

EXCLUSIVE: Taxman's May wind-up blitz a record

THE Australian Taxation Office (ATO) issued more wind-up notices in the month of May than in any given month since July 2012, figures obtained exclusively by Sydney Insolvency News (SiN) show.

The ATO numbers - collated from company wind up activity initiated by the offices of state revenue, workers compensation insurers, ASIC, the ATO and non-government sources - show the ATO filed 556 applications to wind-up non-compliant companies last month. From all sources, the number of wind-ups filed in May reached 722, also a record for the period.

                                                     Courtesy Insolvency Notices

According to Insolvency Notices, produced by Jamieson Louttit & Associates, the next busiest month was August 2013, when the ATO issued 361 notices out of a total of 624.

"If you look at the ATO's annual reports and work out the averages, the number of wind-ups the ATO has filed in May 2015 represents more than half the annual average," Louttit said.

The ATO's annual report for the year to June 30, 2014 shows that since 2009/2010 the taxman has initiated wind-up action an average of 1,103 times per annum. That indicates a monthly average of 92 wind-up applications.

"If you look at the red line on the graph, there's been a significant uptrend by the government to push insolvencies," Louttit said.

"There's a positive in this in that if they are cleaning the system out of people who aren't paying their taxes then it gives everyone the ability to do business with someone who is compliant with the laws."

In March 2015, ATO commissioner Chris Jordan flagged the ATO was taking a tougher stance against non-payers. And Louttit said wind-ups by the ATO and other statutory agencies this month could equal May's record number.

"If you look at the statistics for June, the applications to courts already banked up suggest it's probably going to be the same amount," he said. "It's being increased significantly and it's the SMEs being hit."

Louttit said applying to wind-up non-compliant companies generally results in half of those companies being placed into liquidation while the other half finally pay their outstanding bills.

The ATO has begun working harder to recover billions of dollars in taxes SMEs have failed to pay after conciliatory strategies to debt recovery saw tax debt grow, both in terms of total amount owing and the length of time the debt had been outstanding. See: EXCLUSIVE: ATO in debt assault on SMEs

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EXCLUSIVE: ATO wind-up notice extracts payment from Imperial Peking owners

THE ATO's current wind-up blitz isn't restricted to the anonymous rump of small to medium enterprises identified as either late or non-payers of tax - millionaire Sydney restaurateurs Adelina and Alfred Lai have also received the dreaded notice of intent to liquidate.

A day after it was reported that Alfred Lai was helping bankroll a $30 million upgrade of the historic Campbell Stores building which houses his Imperial Peking restaurant, the taxman applied to have the restaurant's holding company, Memule Pty Ltd, wound-up over $100,000 in unpaid debts.

The notice, obtained by Sydney Insolvency News (SiN), shows that the Australian Taxation Office (ATO) made application to wind-up Memule on April 30. 

Memule is the holding company for the businesses trading as Imperial Peking Harbourside and Imperial Peking Harbourside Restaurant. 

On April 29 the Australian Financial Review reported that "Sydney restaurateurs and events identities including the Dockside Group's Drivas Brothers and Imperial Peking Harbourside owner Alfred Lai are funding a $30 million upgrade of the waterfront precinct next to Sydney's Park Hyatt known as Campbell Stores into a premium dining location intended to be one of the best in the country."

Alfred Lai told SiN today that the wind-up notice was the result of a misunderstanding that began earlier this year.

"We got a letter sometime in January and we asked for some time to make the payment and we weren't successful," Lai said.

"So what we did was, I've organised finance and we've paid them already. It was a misunderstanding, that's all," he said.

Lai insisted he was still committed to the Campbell Stores project.

"Of course yes, it's a separate thing altogether, so it's no problem. There was a misunderstanding, we were arguing but it's been paid today," he said. 

Calls to the Drivas Brothers were not returned by time of publication. The Campbell Stores upgrade is reportedly being undertaken through the Tallawoladah Consortium, with the Drivas Brothers' Dockside Group, which operates the Waterfront and Wolfies restaurants, also set to benefit.

For more on the ATO's debt recovery crusade see:

Exclusive: ATO in debt assault on SMEs


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EXCLUSIVE: ATO in debt assault on SMEs

The Federal budget may be redolent with overtures to small business but figures obtained by Sydney Insolvency News (SiN) show that the Australian Tax Office (ATO) has embarked on a debt recovery jihad against SMEs.

In the past six weeks, wind-up applications issued by the ATO have soared, from around 50 per month in March to more than 100 in April. A wind-up application is the first step in placing a company into liquidation. And the trend suggests wind-ups issued this month will total many hundreds.

On May 15 the ATO issued almost 50 notices to wind-up businesses. Yesterday, a further 32 were added to the snowballing tally. Today another 21.

Figures compiled by specialist business advisory Jamieson Louttit & Associates indicate that this month the ATO is likely to initiate more wind-up actions against non-paying corporate entities than in any other month since July 2014, when it threatened to liquidate non-payers on approximately 225 occasions. 

Insolvency Notices data courtesy of Jamieson Louttit & Associates

Jamieson Louttit told SiN the sudden spike was an acknowledgement that SME's with outstanding tax debts were a legitimate target for a cash-strapped government.

"They've got to collect money. That's where I think it's stemming from," Louttit said today, adding that the winding up notices would galvanise a proportion of the non-payers into compliance.

"A lot of those companies who've been issued wind-ups won't go into liquidation because getting the notice will persuade them to pay.

"There's also the issue of Director Penalty Notices (DPNs) and Garnishee Notices. You don't get to see those because they are not publicly available but insolvency practitioners and lawyers will tell you that there has been a significant increase in those as well," he said.

ATO deputy commissioner Cheryl-Lea Field confirmed the ATO was ratcheting up recovery action, warning that approximately 50 per cent of companies issued with a wind-up notice will be forced into liquidation.

"We took a supportive approach during the GFC and said we weren't going to take small businesses to the wall but I think it's time now for us to recalibrate and address that small number of people that are getting an unfair financial advantage," she said.

"Our first focus is on the majority of people who pay on time. Our second focus is on helping people who get into financial difficulty. Our third focus is to ensure that those people who are getting that unfair financial advantage are getting addressed in a more timely way".

More timely action was a theme flagged recently by ATO commissioner Chris Jordan.

Bytecan can't - telco servicer installs VA

ESTABLISHED telco services outfit Bytecan has appointed Steve Nicols of Nicols + Brien as voluntary administrator (VA) of the company, putting the immediate future of around 120 staff potentially in doubt.

SiN has learned that the company was until recently quite profitable and that a number of clients and other players in the telco and communications services space are examining various assets. Majority owned by interests associated with Wayne and Lea Kitchener of Como in Sydney's south, Bytecan was established in 1990. A first meeting of creditors is to be held in Sydney on Friday, February 6, 2015.   

Boasting revenue of about $20 million per annum, Bytecan apparently owes around $1.6 million to the Australian Tax Office (ATO). The company provides maintenance, testing and other technical communications services and expertise to telcos and has worked with all the majors. Another victim of the NBN perhaps?

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