-->

Recent surge in ATO wind ups – Directors failing to consider the utility of Voluntary Administration

Despite the recent tax amnesties granted to wealthy individuals with monies in offshore tax havens the Australian Tax Office has been militant in its recent debt recovery efforts against SMEs. The importance of efficient credit management has again been brought to the forefront as smaller operators who have essentially been using the ATO as a secondary overdraft are now under fire with ATO Winding Up applications soaring to records highs in recent months.

The effect of these increased winding up applications will no doubt serve to increase the quantum of official liquidations nationally in the coming months. The increase in winding ups is however symptomatic of a greater issue within the SME space, namely the failure of company directors to observe the factors of insolvency at an early stage and to take steps to turn their business around.

For those businesses that can’t turn it around through effective credit management reform, restructuring and cost savings, voluntary administration, though often criticised, is an effective tool. The voluntary administration process can be a tool for a struggling company, SMEs and larger corporates alike, to enter into a period of caretaker administration to have their solvency position assessed by a qualified insolvency practitioner with a view to assist that company to satisfy its debts:

  • Either by being returned to its directors as a solvent company;
  • Entering into a deed of company arrangement – a formal arrangement with creditors to pay certain debts; or
  • Being placed into liquidation, efficiently and cheaply.

The process is designed to maximise the chances of a company continuing to operate by giving it the opportunity to propose alternatives to liquidation to its creditors. Given the ATO is often a major creditor of many struggling SMEs a well executed voluntary administration, coupled with the right business reform can yield adequate dividends to the ATO and other unsecured creditors – enough often for them to consider avoiding the cost of a Court winding up and seeking to return the operation of the Company back to its directors.

If your business is facing cash flow issues, insolvency or the ATO is putting the pressure on it is vital you seek appropriate legal advice from an insolvency lawyer and discuss your options with an insolvency practitioner.