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The number of ATO-initiated wind-up applications has all but dried up this year as the Tax Office softens its tax debt recovery approach in a COVID-19 environment.
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ATO wind-up applications plunge to ‘lowest level since 2014’
21 May 2020
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From February to April this year, the ATO filed just 30 court applications to wind up companies, with April recording a mere seven applications.
In contrast, the ATO filed an average of 155 wind-up applications per month in the February to April period for the last two financial years, and an average of 142 applications per month for the three-month period dating back to 2014.
The latest figures, compiled by insolvency firm Worrells in its annual insolvency report, comes as the profession notices the Tax Office adopting a sympathetic approach in the wake of COVID-19.
“We’re not surprised to see the ATO taking a softened approach to its debt collection process during times when the country is suffering,” said Worrells partner Nikhil Khatri.
“We saw it in the Black Saturday bushfires in 2009, and the floods in South East Queensland in 2011, and most recently in the 2019–2020 bushfire crisis.”
However, Mr Khatri believes the temporary reprieve from the ATO should not be taken for granted, with the Tax Office now presented with new measures and tools that are likely to influence winding-up applications in the near future.
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In particular, the recent expansion of the director penalty notice regime to GST, luxury car tax (LCT) and wine equalisation tax (WET) liabilities will increase the visibility of vulnerable business activity in respect of tax obligations and liabilities.
Likewise, the ATO’s power to disclose business tax debt information to registered credit reporting bureaus should also weigh heavily on directors’ minds when it comes to respecting their tax obligations, Mr Khatri said.
“Reported tax debt, now and post-COVID-19 crisis, means that it’s possible that pressure will come from other creditors to ensure their debt is recovered in view of increased visibility to the business’s exposure to debt and lowered credit ratings,” Mr Khatri said.
While the government has temporarily relaxed insolvency laws and rolled out its stimulus measures to offset the economic impact of COVID-19, insolvency experts have since warned that an “insolvency tsunami” is likely to hit once those measures are wound back.
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