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The power of the ATO during an insolvency

The power of the ATO during an insolvency

Approximately 11,000 companies were placed in some form of external administration during the financial year ended 30 June 2018.

During the same period approximately 32,000 individuals entered into a personal insolvency arrangement whether that be voluntarily or not.

The ATO was the initiator of 20% of all company liquidations and 4% of all bankruptcies during this period. Further to this, the ATO used garnishee powers in approximately 1.1% of all business and individual debts. As of 30 June 2018, the ATO were owed $23.7 billion in collectable debt with $15.1 billion of this debt relating to small businesses.

In a number of insolvencies the ATO is the largest and sometimes only unrelated unsecured creditor and the inability of the company or individual to pay their taxation liabilities will lead to the formal appointment of an insolvency practitioner; despite the ATO not making the application to court to initiate the appointment.

In summary they are not to be ignored.

Payment plans are an option in order to avoid formal insolvency appointments, however the level of debt incurred is often too significant for the ATO to agree to a payment plan.

We have recently dealt with a couple of examples where the ATO has been prepared to provide the directors of companies in external administration with additional time to satisfy their director penalty notices and taxation liabilities outstanding subject to offering the ATO security over their personal assets.

In our most recent case the offer of security over a personal asset has provided the directors with sufficient time to obtain some interim finance and market their property for sale. This action will have a flow on effect and facilitate a return to the company’s creditors.

Communication has always been paramount when dealing with creditors, in particular the ATO. Being aware of all the options may assist in avoiding a formal insolvency appointment or at the very least providing additional time to restructure or sell a business or a personal asset.

If you would like further details regarding these examples, please contact SV Partners.


Article written by Anne Meagher, Director, SV Partners Toowoomba