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A spike in unqualified advisers approaching distressed clients amid the pandemic-induced recession has been anticipated by the ATO, with the tax profession urged to keep an eye out for red flags.
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ATO braces for flood of unscrupulous advisers
19 November 2020
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Speaking at the Accounting Business Expo this week, ATO assistant commissioner George Montanez said that while dodgy advisers are an ever-present feature in the marketplace, the current economic conditions meant a rise in illegal phoenix activity would be inevitable.
“Phoenix activity normally follows economic activity,” Mr Montanez said.
“Unfortunately, we’re anticipating an increase in untrustworthy advisers hitting the market to encourage these businesses that are struggling to do the wrong thing.
“They are out there in normal times, but with the number of businesses that are expected to be in trouble as a result of COVID-19, we’re anticipating and we’re preparing [for an increase].”
A spike in insolvencies has been anticipated by the Reserve Bank and a wide range of economists, with the government itself noting a 46 per cent decrease in the number of companies that have gone into external administration over the period from March to July 2020 compared with the same period last year, a sign that its COVID-19 stimulus measures may have been propping up companies that would normally wind up in any given year.
Mr Montanez said the ATO would get a clearer picture of the market once the stimulus measures are wound back, but revealed that new resourcing provided to the ATO and ASIC to facilitate better data exchange would enable it to catch on to egregious behaviour faster.
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“This measure allows ASIC to send us data, we fuse it with our own data, and we’ve also been funded to develop analytical tools and visual tools to sense the environment and determine where the hotspots are,” Mr Montanez said.
“We will be building on this, looking for these unreputable and unscrupulous advisers and at the same time supporting the legitimate businesses that are in trouble as a result of COVID-19.”
Common red flags
Mr Montanez has urged tax professionals to keep an eye out for red flags and warned clients to steer clear of untrustworthy advisers.
Some common warning signs include clients receiving cold calls with offers of advice, unsolicited correspondence after court action by a creditor, advice to transfer assets to a third party without payment, and a refusal to provide advice in writing.
Other red flags seen by the ATO include suggesting to clients that a sympathetic liquidator will be roped in to protect their personal interests and assets, suggesting that they can deal with the liquidator or trustee on the client’s behalf, or advising that certain records be withheld from the bankruptcy trustee or liquidator.
“It’s important to report these suspicious behaviours,” Mr Montanez continued.
“As an adviser, those people are taking your clients from you, clients that you’ve known for many, many years, potentially undercutting the fees that you’re charging, and at the end of the day getting them into trouble.”
The ATO’s warning comes after the Australian Financial Security Authority issued a warning on the rise of dodgy insolvency advisers earlier this month.
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