Insolvency Australia

Inside Small Business: SMEs at risk from ATO and creditor action

The ATO and other creditors currently pose the greatest threat to cash-strapped SMEs, according to Insolvency Australia in its latest Corporate Insolvency Index.

The findings are based on the volume of external administrations around Australia, with Q4 statistics showing a 57 per cent increase in appointments nationally, compared with the previous corresponding period (3,008 vs 1,921).

“It’s been a tough year, with a significant increase in winding-up applications and ATO-initiated Court recovery, particularly over the past quarter,” Gareth Gammon, Insolvency Australia Director, said. “Over the past year, there’s been plenty of discussion in the sector about the incoming insolvency wave. It started with a trickle and it’s now become more of a surge as economic pressures and the ATO’s debt collection activities combine to create the perfect storm. Beyond this last quarter, we’re now seeing an increase in Court wind-ups by the big four banks, which means the next few months could well be equally challenging.”

Jirsch Sutherland Partner Chris Baskerville, a member of Insolvency Australia, said that he expects insolvencies to continue to increase in the back half of the 2023 calendar year.

“The rise in insolvency appointments can be directly attributed to the increase in ATO enforcement action. Its enforcement of outstanding debts is reaching, if not surpassing, pre-pandemic levels,” Baskerville said. “The ATO appears to be less amenable to payment arrangements, especially those that propose greater than two years.”

Petr Vrsecky, Insolvency Australia member and Partner with PKF Melbourne, opined that another wave of insolvencies could be coming if the fixed rate mortgage cliff causes distressed selling and any significant drop in property prices.

“Interest rates continue to dampen consumer spending and, therefore, it seems inevitable that businesses will be adversely affected. There’s meant to be a recycling of capital, meaning that inefficient businesses fail and better managed businesses get more capital allocated to them,” Vrsecky said. “It would, therefore, seem inevitable that the rate of insolvencies must increase following the ‘pandemic era’ interference and taxpayer support, which made it too easy to operate businesses that had no place being there.”

Insolvency Australia member Joshua Taylor, founder of Taylor Insolvencies, said that high-interest rates along with ATO action are also likely to lead to an increase in personal insolvencies.

“If rates stay high or push even higher, that will put pressure on the housing market, which will lead to an increase in bankruptcies,” Taylor said. “Personal insolvencies have been more subdued but I see the bankruptcy / personal debt sector picking up steam.”

Baskerville, however, noted a positive change in the past year which is the increased desire by eligible small businesses to undertake Small Business Restructuring (SBR) plans.

“SBRs will continue to increase commensurate with the education of trusted advisers,” he said. “As they get more familiar with the concept, the more it will be promoted,” Baskerville said. “In terms of the number of appointments, I believe SBRs will ovetake voluntary administrations in the future.”

Gammon echoes this viewpoint saying, that the Index shows a greater level of SBRs, particularly in NSW, QLD and VIC.

“In the past financial year, there were 333 SBR plans executed – a significant increase from the previous year,” Gammon said. “It’s obvious that more advisers and directors are becoming aware of the many benefits of SBRs – including appeasing the ATO.”


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