Jirsch Sutherland partner Andrew Spring said the firm has long been predicting a rise in business failures and the ATO’s decision to call time on debt meant many would need to be wound up.
“We always knew it was coming. The ATO’s collectible debt has tripled over the past couple of years to somewhere approaching $60 billion – so it was only a matter of time before they said to everyone, ‘[it’s] time to pay’,” Mr Spring said.
Director penalty notices are now being issued at the rate of 30 to 40 a day, the ATO admitted last week, and it had begun reporting debt of $100,000 or more to credit agencies.
This followed a series of more than 80,000 warning letters sent out in April that alerted company directors that they needed to address their liabilities or the ATO would act.
Mr Spring said the warning shots were clearly just the start, and tough decisions would now need to be made.
“Inevitably, if some of those companies are not engaging, then the ATO will have to step up to other measures. The first will be DPNs, credit reporting and we may see garnishee notices and winding up notices,” Mr Spring said.
While pandemic support had artificially suppressed the number of insolvencies to 5,000 to 6,000 last year, the historical average ran to 8,000 to 10,000 a year and Mr Spring said the signs were already ominous.
“I wouldn’t be surprised if we beat our historical average over the next six to 12 months from here,” he said.
“We’ll definitely see an up-trend, that’s because we’re hearing from our referral networks – that’s accountants, business advisers, lawyers and so on – that a lot of their clients are in a situation where they do need to address this issue. They have some accumulated liability and we’re coming out of a period of forbearance and it’s now time to pay.
“That can only be done in two ways: you pay, or you move through an insolvency procedure.”