While the Tax Office, the Morrison government, and even the banks are more willing to support restructuring solutions than they have been in the past, the ATO is expected to start cracking down on payment plans and compliance, says one insolvency expert.
In the wake of JobKeeper, and the expiry of other government support programs, the ATO is expected to ramp up enforcement in line with the government’s move to revert to a “business as usual” approach, said Kathy Sozou, restructuring partner at McGrathNicol.
“My sense would be that, as JobKeeper tapers off, and we start to revert to whatever this new normal looks like, the ATO would also start to revert back to their normal practice,” Ms Sozou said.
“I’m not necessarily saying that they’ll be overly aggressive, but [they might be thinking]: ‘If we need to instigate payment plans, let’s actually enforce them, rather than putting a payment plan in place and allowing leniency on compliance in relation to that plan’.”
According to data released by ASIC, roughly 8,000 businesses go into external administration each year. Last year, only 5,000 businesses went into administration, leaving 3,000 businesses on the precipice of insolvency.
On the release of their joint white paper, The future of insolvencies: tsunami, torrent or trickle?, CreditorWatch and McGrathNicol expect an additional 2,000 businesses to fail this quarter, bringing the total number of businesses likely to become insolvent in the second quarter of 2021 to 5,000.
“While insolvency numbers have risen in 2021, it’s the increase we needed to see,” said Patrick Coghlan, CEO at CreditorWatch. “We need to get back to at least pre-COVID administration levels and away from the synthetic environment we’ve lived in for the past 12 months.
“We’re going to see sustained increases in administration numbers until they reach normal levels. I’m not expecting the tsunami of insolvencies that was talked about last year, but the fact is, companies need to be allowed to fail; that’s how the economy works.”
According to CreditorWatch’s February Business Risk Review, external administrations were up by 61 per cent from January, but have seen a 50 per cent drop from those recorded in February last year.
Ms Sozou also expects a rise in company-led restructuring through 2021, and suggests that market conditions and improving business confidence are providing an environment that supports doing so.
“There’s capital available for the right businesses, and stakeholders such as the federal government, the Australian Taxation Office and the banks are much more willing to support restructuring solutions than they may have been in the past,” she said.
However, along with the Tax Office, banks are more likely to pivot away from accommodating the leniency observed throughout the pandemic. Jason Preston, chair of McGrathNicol, expects banks, like the ATO, to become more “front-footed” through the rest of the year.
“Loan-to-own transactions are a growing trend in restructuring, where the lender takes control of the business using the insolvency process to restart the business and implement a new business model,” he said.
“I think we’ll see more businesses use the restructuring and insolvency process to reshape and resize their operations.”
The tide is changing, Ms Sozou said, and while the pace at which the ATO will crack down on enforcement can’t yet be deciphered, stakeholders can expect to see a marked shift in its approach through the rest of the calendar year.
“As the relief measures have changed, I think over the next period — whether it be three months or six months — the tide will turn for all stakeholders, to edge us towards more ‘business as usual’.”
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