We recently helped a Sunshine Coast restaurant owner. His company was facing liquidation proceedings by the ATO and previous proposals for payment arrangements had been rejected by the ATO.
The company’s situation was:
- $280,000 owed to the ATO in PAYG Tax and GST;
- $70,000 owed to the ATO in superannuation;
- The director had personally guaranteed the lease (rent was up to date);
- There were limited other creditors ;
- $20,000 in assets;
- The director had previously suffered major health problems; and
- The director’s property was for sale.
The options available were:
- Sell the business to a related entity. During the initial meeting, the client indicated he might want to sell the business to a related entity before liquidation. This is known as a phoenix transaction, which may be illegal, depending on how it is carried out.
- Let the ATO wind-up the company. This could occur either before or after a business sale. If the liquidation happens prior to a business sale, the client could make an offer to the Liquidator for the business.
- Negotiate a payment arrangement with the ATO.
Suggested Course of Action
Entering into a phoenix transaction or placing the company into liquidation were not optimum outcomes for this company. This was due to the following:
- The director would be liable for a significant amount of the PAYG Tax and superannuation owed by the company (over $200,000) due to the ATO’s Director Penalty Provisions;
- If the director was still a party of the lease when the company was placed into liquidation, he could be liable to the landlord;
- The negative stigma associated with a phoenix transaction/business sale; and
- The director may have breached his duties if he entered into a phoenix transaction/business sale.
Our recommendation was that the director use the proceeds from the sale of his property as part of a payment arrangement with the ATO.
A proposal was put to the ATO for a payment arrangement which was accepted. Under the proposal the director was to pay $200,000 to the ATO within two months, and the remainder of the debt over approximately 18 months. As part of this arrangement, we informed the ATO (with evidence) of the director’s health problems and requested the ATO write-off the interest and penalties during the period of ill health.
The ATO agreed to our proposal and agreed to write off slightly more than $47,000 in interest and penalties. The winding-up process by the ATO was also adjourned for 2 months, so that the first payment could be made. After the initial payment was made the winding up application was dismissed.
This result avoided personal liability for the director and the negative stigma which would have been involved with a phoenix transaction and resulted in the ATO writing off a significant part of its debt. A great result for the director and his business.
If your business has a tax debt and you would like to consider all the options, which may be available, the professionals at TAX DEBT SOLVED can help with a free, no-obligation consultation, contact us here.