Crunch time: ATO crackdown as 63 firms collapse in a month

The ATO is becoming more aggressive in its debt collection, sending more companies to the wall. See list of all the Queensland companies that went bust in the past month.

The tax office is becoming more proactive in chasing debts

Queensland companies that managed to keep their doors open during Covid-19 may not survive the onslaught of the taxman.

ASIC records show liquidators or voluntary administrators were appointed to 63 Queensland-based companies in May, up from 60 in April but down from 71 in March.

Cleveland-based Solido Builders, which specialised in bespoke luxury homes, and South Bank-based Universal Asian Supermarket were among the companies wound up in May.

WCT Advisory partner Andrew Weatherley said he expected a surge in insolvencies as the Australian Taxation Office (ATO) refocused on a firmer debt collection strategy after assisting businesses during the pandemic.

“We have already been approached by clients who have received warning letters (from the ATO) and were proactive enough to realise time was running out to mitigate personal liability for an old tax debt,” Mr Weatherley said.

“However, the number of notices that have actually been issued and the number of DPNs (Director Penalty Notices) being issued has even surprised us.”

The ATO has said its preferred approach was always to work with taxpayers to resolve their situation through engagement rather than enforcement.

However, where taxpayers don’t engage, the ATO will take firmer action including garnishees (issued to third parties), recovery of director penalties, disclosure of business tax debts, and legal actions including summons, creditors petition, wind-up and insolvency action.

Mr Weatherley said his firm has received feedback about businesses who have weathered the Covid storm and were back on track, with all suppliers and finance commitments up to date. “However, there is still a substantial tax liability that has been sidelined due to the ATO not doing anything about it ... until now it seems,” he said.

“Little thought has been given to the options available other than trying to ignore the issue of negotiating unsustainable payment plans – somewhat encouraged by the ATO’s approach during Covid.”

ASIC records show liquidators or voluntary administrators were appointed to 63 Queensland-based companies in May.

Revive Financial head of business restructuring and insolvency Jarvis Archer says builders continue to dominate headlines with one in every four company insolvencies being in the construction industry. “The wet weather in south-east Queensland has only added more difficulty to the existing challenges in the industry,” said Mr Archer.

He said recent company insolvency rates indicate it is climbing back to normal levels. Year-to-date appointments of 4,269 are trending at 65 per cent of pre-Covid levels, compared to just 52 per cent for the same period last year.

According to trade credit insurance firm Atradius 2022 and 2023 will mark the return to normality for general insolvency levels in many markets, led by zombie companies at the

outset. Atradius predicts insolvency levels in Australia will still be high at the start of 2023 and will progressively normalise throughout the year, leading to a high insolvency level for the full year.