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.

"One of the criticisms the insolvency profession has had in the past is that ATO-initiated winding-up applications happen very late, when the companies are often assetless," he said

"The longer you leave the recovery action, the less there is for the ATO and other creditors," McCann said.

"So if this program the ATO is embarking on means it will be taking action earlier we may, we may find more companies being wound-up by the ATO that do have assets.

"The bigger picture might be that if we have a more assertive ATO from the debt recovery perspective, that may result in more work for insolvency partitioners, not so much on court winding-ups but in terms of driving earlier action by directors. We may see more voluntary administrations so there might be a longer term upside for insolvency practitioners," McCann said,

Such an outcome is dependant on the current increase being more than temporary. McCann said he wasn't sure if the present levels would be sustained beyond the calendar year and pointed out that even if the wind-up numbers have suddenly ballooned to many hundreds per month, they are eclipsed by the number of agreements the ATO and SMEs are entering into.

"You have to balance this surge in the number of wind-up applications with the probably tens of thousands of repayment arrangements the ATO would enter into in a given year," he said

"The increase in wind-ups is still a very small portion of the overall activity," he said, a point confirmed in the ATO statement.

"In 2014-15, we supported small businesses by providing over 500,000 payment arrangements that allowed them to manage their tax debts," the ATO 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," the ATO said.

Got a SiNful tale to tell?