Insolvencies set to rise as ATO, banks, draw back debts

Insolvency ATO banks debt
Legacy and current debt repayments are a priority. (Source: Bigstock)

A rise in court actions filed by the ATO and the big four banks could be a danger to company directors.

The organisations have legacy debts, as well as current debts, in their sights, according to business and personal insolvency specialist Jirsch Sutherland.

Malcolm Howell, a partner with Jirsch Sutherland, said the renewed pressure from the ATO and banks will likely see insolvencies continue to rise. 

“We’ve done forward calculations that indicate appointment external administration numbers will likely hit the 8,550 mark for the 2024 financial year, which is a significant increase on 2023.”

The latest Credit Insights Report from Alares reveals a substantial rise in court activity initiated by the ATO in October, compared to September.

Winding-up applications and bankruptcy petitions were at their highest monthly level since 2019.

The big four banks also ramped up their Court recoveries during October.

Howell said directors need to take action if they have tax debt – even for businesses wound up years ago. 

“The ATO isn’t just after current debts; there are also clear signs it is ‘dusting off old files’ to recover company debt from directors personally, where they have the power to do so under the Director Penalty Notice (DPN) regime. 

“For example, the director of a company that was liquidated in 2019 recently advised us that the ATO had issued them with a DPN linked to the superannuation guarantee covering the 2015 and 2016 financial years.” 

Patrick Schweizer, director of Alares, said “The data clearly points to the ATO pushing to clean up and collect legacy debts, which may also explain the recent spike in Small Business Restructuring (SBR) appointments, as business owners look for ways to keep their businesses afloat.”

Howell said the landscape is changing in regard to SBRs. 

“While in the past the ATO has been somewhat amenable to payment arrangements and reducing debt via a reduction in the level of interest accrued, this appears not to be an option now.  

“Regardless, it’s crucial for businesses – not to mention individuals – who have a tax debt and are facing financial distress to seek advice sooner than later. The longer you leave it, the fewer options there are available.”