Insolvencies to rise if ATO embarks on penalty notices push

The number of businesses being put into administration could increase if the Government ramps up its distribution of director penalty notices, experts have warned.

The warning comes as new figures from the Australian Securities and Investments Commission show the number of corporate collapses increased by 4% during 2009 as businesses struggled with the global financial crisis.

The figures show the number of businesses being put into some form of administration in 2009 rose to 9,437 from 9,113, while there were 28,277 personal bankruptcies compared to 26,706 the year before.

New South Wales recorded the largest number of collapses with 4,124, with Victoria following at 2,418 and Queensland rounding out the top three with 1,798.

But experts, including Sydney liquidator Nicholas Crouch, are warning the number of businesses being placed into administration could jump if the ATO decides to start increasing the number of director penalty notices its sends out.

Insolvency experts say the ATO has been sparing in its use of director penalty notices (which make a director personally liable for unpaid company tax) during the downturn.

Cliff Sanderson, managing director of business consultancy Restructuring Works, says the number of penalty notices being sent is increasing.

“I’ve been banging this drum for quite awhile. They virtually stopped sending them since April, but I’ve seen a couple towards the end of last year.”

“The number of companies in administration could increase when these notices are sent out.”

Jim Downey of JP Downey and Co. says an increase in the number of these notices could prompt company directors into calling in administrators, boosting the number of corporate collapses.

“In these notices, a letter is given to the director of a company when they haven’t paid a certain tax, including PAYG. They say they haven’t paid a certain tax, and they have the following options including payment, administration, liquidation or a payment plan.”

Downey says suggestions that the ATO is considering ramping up the use of penalty notices doesn’t come as a surprise.

“It’s likely to have directors coming screaming into our arms again. This report doesn’t surprise me at all, the Government tends to have purges from time to time.”

“Ordinarily you do hear announcements about this sort of thing. They normally couple that purge with a direct tax through the front door of the company by also serving a statutory demand, which gives the companies about three weeks to pay outstanding tax.”