Insolvencies down 22%: Can we thank the ATO?

The number of businesses going into administration has fallen dramatically compared to the same time last year, prompting insolvency practitioners to speculate that the Australian Tax Office has changed its approach or cleared its backlog.

Statistics published yesterday by the Australian Securities and Investment Commission record 799 companies entering into external administration in June this year compared to 1,027 for the same month last year, a fall of 22.2%.

ASIC senior executive leader Adrian Brown said the fall contrasted with a backdrop of relatively high insolvency appointments overall.

JP Downey & Co principal Jim Downey says the fall in insolvencies is not surprising.

“Anecdotally around the insolvency practitioners, the rumour is that a lot of them are quieter than they have been for a while. I’m not sure why, but it could be the direct result of the ATO backing off a bit or even the banks not making so many appointments,” he says.

“Some of the visibility is reduced in recent times as ASIC has set up its own insolvency website where practitioners advertise appointments and meetings of creditors. You used to see it all in the papers but now it is not as easily seen.”

Cliff Sanderson, liquidator at Dissolve, thinks the drop may be attributable to the ATO finally getting through a backlog of insolvencies it has been dealing with following the GFC.

“For the last couple of years the ATO has been relatively understanding of companies which have difficulties paying their tax debts,” he says.

“Then, about a year ago, it reined in the length of time given to companies on their repayment schemes.

“It may just be an indicator the ATO is starting to work through the backlog.”

Sanderson says the drop in insolvencies in June is the first downturn that has been noticeable this year.

“I don’t think the ATO are going easier but they are getting through the backlog,” he says.

“After the global financial crisis the ATO went very light on companies and was extremely understanding and that went on for a couple of years. But 18 months ago it started tightening up, so there was a big backlog for the ATO to work through.

“For a lot of the liquidations over the last 18 months, a material proportion have been businesses that ceased to trade a year or so prior to that.”

An ATO spokesperson told SmartCompany that where a viable business is having difficulty meeting its tax payment obligations, the tax office works with the business to find a mutually acceptable solution that fits its individual circumstances, such as a payment arrangement.

“While the ATO supports businesses that try to do the right thing, we have a responsibility to take firmer action with the minority who don’t. This ensures a level playing field for business,” the spokesperson said.

“There has not been any change to the ATO’s approach in taking firmer action.”