ATO steps up debt recovery with flood of winding-up orders

The Australian Taxation Office is getting more serious about chasing the $15 billion owed by SMEs, with the number of winding-up orders the ATO has applied for jumping sharply in recent weeks.

According to insolvency experts, the number of ATO-driven winding up orders coming across the desks of administrators and liquidators has risen from one a month in 2010 to two or three a week.

In today’s edition of The Australian, there are a staggering 16 notices of winding up orders from the Deputy Commission of Taxation. Most appear to be aimed at small and medium businesses in sectors including retail, HR, construction and hotels.

Michael Fingland, managing director of Vantage Performance, says the ATO started to step up recovery action towards the end of 2010, but slowed its efforts when natural disasters hit Queensland, New South Wales and Victoria.

“When the floods and cyclones hit there was an unofficial hands-of policy from the ATO and also from the banks,” he says.

“But since the start of March we’ve seen that financiers as well as the ATO have stepped up recovery action.”

Insolvency veteran Martin Green of BRI Ferrier also says the ATO has become more aggressive.

“They’re being less helpful than they have been in the past. I think you’ll find that the ATO’s SME debt has blown out dramatically and they are keen to rein it in, especially around [Federal] Budget time.”

“To a large extent I think it’s a cleaning up with the very worst matters – the guys they’ve tried to do a few deals with and just won’t pay.”

Fingland estimates SME tax debt has jumped from about $9.4 billion prior to the GFC to around $15-16 billion today, thanks in no small part to the large amount of payment plans the ATO put in place with struggling SMEs during the downturn.

In addition to the increase in winding-up orders, Fingland says the ATO is issuing more director penalty notices (which make directors personally liable for unpaid company tax debts) and garnishee orders (which allows the ATO to take funds directly from a late payer’s bank account).

“That’s just a sign of how bad the situation is. Companies simply weren’t talking and communicating with the ATO.”

Green expects there will be “steady stream” of winding up orders in the coming months as the ATO continues its debt recovery efforts.