Other options include voluntary administration or appointing a small business restructuring (SBR) practitioner.
Mr McInerney said SBR, which began under COVID-19, was designed to assist businesses to come to a formal compromise with creditors while allowing directors to remain in control and continue trading.
He said many accountants were still unaware of the benefits of SBR and only a few dozen companies had been through the process.
“Advisers don’t really know the process and they’re still scared of it. They say, ‘this is great’ but there’s a reluctance to do anything,” Mr McInerney said.
“Normally, the ATO takes steps to wind up a company that doesn’t pay their debt so they had this DPN as part of their artillery for years.
“But the ATO is taking a commercial approach here to support businesses that have gotten into strife post pandemic.”
It would help the ATO claw back some of the $21 billion in SME tax debt – around 40% of the total – and make it look like a good creditor, encouraging companies to engage with the office.
Mr McInerney said for companies with the potential to survive SBR was a good solution. For the others, most insolvencies were six months away as the ATO attempted to work with its debtors.
For the ATO, an SBR added up to a good result.
“The ATO at the moment is accepting deals at 5¢ or 10¢ on the dollar, which is a significant write-off of debt. Weirdly enough, the ATO actually gets zero in a lot of cases so that’s actually a really good return,” Mr McInerney said.
Mr McInerney said taking a company to court cost the ATO $20,000-$30,000 in legal fees and fewer than 1% of liquidations resulted in the debt being repaid at 51¢ on the dollar or better.
More than 90% ended with no repayment to the ATO at all.
The SBR process offered a return of 5¢ to 10¢ on the dollar and worked for both sides. But he warned the opportunity would not last forever.
“There was nothing written into the SBR process that sets a settlement rate with the office, and the ATO will eventually seek better results,” Mr McInerney said.