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Seeking help sooner rather than later gives a business owner more options and leads to a better result for all the stakeholders, say two insolvency specialists.
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Accountants ‘should act early on tax debt red flags’
16 October 2023
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An ATO warning about tax debt should be a red flag to any accountant that the business needs to talk to an insolvency specialist before the situation becomes irretrievable, say two specialists in the field.
The earlier a warning flare went up, the more options were available to the business owner, said Jirsch Sutherland national managing partner Bradd Morelli and Sydney partner Andrew Spring on the latest Accountants Daily podcast.
“The processes are important and can be very beneficial but the trick is coming in early for a discussion so people can be better educated, better aware of what their options are, how they work, and then make a more informed choice,” said Mr Morelli.
“Historically, people tend to leave it later, especially in the SME sector. The later they leave it, the less options they have, the faster the door is closing.”
Mr Spring said two examples illustrated two different results but both were better off for early intervention.
“Both businesses came to see me in different circumstances, but showing the same symptoms: declining sales, a leadership group which had run out of ideas around how to correct that scenario,” he said. “Both went through a voluntary administration process.”
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“The first one we worked through and discovered that the market itself had changed. It wasn't what was happening inside the business that was any different, it was just the market position had changed.
“Ultimately, an orderly winding up of that business is what occurred, and creditors received something like 70c in the dollar because the decision was made early.
“That business was in a position to continue to trade and continue to scratch its head for another six to 12 months and would have lost all of the creditors’ money, but coming early meant that we identified that it wasn't saveable and ultimately returned what I consider to be a good amount to creditors.
“The second business came to see me – same thing. The operations were going OK or no differently, but the market was changing.
“But largely, the market was changing in a way that just meant that they needed some capital to ride through the storm. So that business went through the administration process and ultimately found a purchaser and was able to successfully transition into the next phase of its life.
“That business could have also held on for another six months, largely decimated its reputation and probably become unsaleable.
“But by coming early both of those scenarios create really good outcomes for the creditor group, but also the owners because they feel like the weight is taken off their shoulders and they've got clarity around where they're going.”
Mr Morelli said accountants had a critical role to play.
“Accountants are key in this process,” he said. “We might be the experts that deal in the processes and the like, but we're generally not liaising with the business owners until they're in a situation where they need us and are often referred in.
“The first port of call – not always, but more often than not – will be their accountant. And a red flag, especially in the SME sector, is the ATO.”
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