Taxman takes big stick to struggling firms

More companies hit the wall in July as experts warn dwindling cash flow means directors are under pressure to meet standards. Full list

The Australian Taxation Office is taking a big stick to struggling businesses which owe them money despite the continuing impact of Covid-19 on cash flow.

The tough approach by the ATO comes as 79 Queensland companies collapsed into insolvency in July, up from 63 the previous month.

Skymark Construction and Lifetime Builders were among the construction sector firms to appoint liquidators last month while retailer Universal Asian Supermarket also closed its doors.

One leading insolvency expert has warned that dwindling cash flow meant director conduct in some instances was falling below expected standards.

Revive Financial partner Jarvis Archer said the ATO had until recently maintained a restrained approach to debt recovery amid the downturn caused by extended lockdowns.

“However their attitude has markedly changed,” said Mr Archer. ”Until now, they willingly accepted payment arrangement proposals as well as waiving penalties and interest.”

But Mr Archer said the ATO was now seeking on time payment of debts, rejecting payment plan proposals and refusing requests to waive penalties and interest.

Experts say September quarter insolvency figures will be crucial in assessing how businesses in Queensland are coping.

Mr Archer said company insolvency appointments last month were still only about 60 per cent of those seen in July 2019 as struggling businesses indicated they would seek to access government stimulus funds rather than proceed with insolvency appointments.

“We may be well into 2022 before we see insolvency appointments return to pre-Covid levels,” said Mr Archer. He warned that more small business owners were reaching the end of their cash reserves and director conduct was falling below expected standards.

“We’ve seen directors using available company assets to meet their personal expenses, and one director indicated they’re taking a ‘no rules’ approach to what they do,” he said. “Adding to the desperation, many small business owners feel unfairly looked after by the government compared to big businesses.”

Hospitality and transport were among the hardest hit industries, but Mr Archer said he also was seeing increasing inquiries from the construction sector.

CreditorWatch chief executive Patrick Coghlan said September quarter insolvency figures would be crucial in assessing how businesses in Queensland were faring.

He said the Australian economy was highly integrated and while Queensland may have escaped recent Covid scares, the lockdowns in Melbourne and Adelaide and the extended lockdown in New South Wales were having an adverse impact on businesses in Queensland, especially in the southeast corner.

Originally published as Taxman takes big stick to struggling firms