We are commonly contacted by the accountants for companies which have large debts owed to the ATO. These companies have often defaulted on several payment arrangements and/or have been refused a payment arrangement by the ATO. In some cases, the financial position of the company is terminal and there is no option but to appoint a liquidator or voluntary administrator.
In cases where a company may be able to trade profitably in the future, often liquidation or voluntary administration are not the best alternatives, given the potential problems for directors associated with those types of appointments.
Approach we Take When Meeting with Clients
The approach we take when dealing with allclients referred to us including companies with large ATO debts is to:
- Review the company’s circumstances with its directors and accountant;
- Consider whether the company can trade profitably in the future, including considering any steps which may be taken to improve profitability;
- Look at the risks associated with any future insolvency appointment, such as liabilities for personal guarantees or Director Penalty amounts; and
- Advise the options available such as negotiating compromises or payment arrangements with creditors, considering the sale of part or all of the company’s business or placing the company in voluntary administration or liquidation.
Often for companies with large tax debts who have breached payment arrangements or been refused a further arrangement, the best alternative may be for us to make a proposal to the ATO on the company’s behalf for a further payment arrangement.
How do we Approach the ATO
We assess matters on a case by case basis and determine the best approach to take with the ATO. Commonly, however, the approach we take is to advise the ATO of:
- The estimated return in a liquidation should the company be placed into liquidation compared tothe returnexpected under the proposed payment arrangement; and
- Details of estimated future profitability of the company includingany profit improvement or turnaround strategies which have been put in place.
We have found this approach to be very effective in dealing with the ATO, commonly because for most companies if they are placed in liquidation there will be little or no return to the ATO given other creditors and costs which will be paid in priority to it. The ATO knows this as their internal statistics show they receive an average dividend of less than 5 cents in the dollar in formal insolvency appointments.
How are a Company’s Accountants Involved
If a payment proposal with the ATO is accepted, this is not an overall solution for the company. We therefore recommend that once a payment arrangement is in place the company’s directors work with their accountant to implement profit improvement strategies to address any underlying issues which the company has. We can assist with this process, however, we mostly find that a company’s current accountant is the person best placed to advise on what the company can do to improve its financial performance.
Examples of Successful Negotiations with the ATO
We assist in negotiating numerous payment arrangements for companies with the ATO each year. Some of the more recent matters we have assisted with are summarised below:
- We were approached by the accountants for a large transport company which owed over half a million dollars to the ATO. The company had defaulted on 8 previous payment arrangements and the ATO was threatening enforcement action. Upon our review of the company’s circumstances we advised that if the company was placed in liquidation it would result in the directors becoming bankrupt due to numerous guarantees which they had given to financiers and other creditors.
The directors then engaged us to put a further proposal to the ATO for a payment arrangement to pay the company’s tax debt over two years with the ATO agreeing to write off interest and penalties it had charged. After some negotiation the payment arrangement was accepted and the company avoided being placed in liquidation. We then worked with the company and its accountant on profit improvement strategies, specifically around reducing the company’s costs and expenses.
- We were engaged by the director of a company which traded a retail business which owed a debt of about $200,000 to the ATO. The ATO had issued the company with a statutory demand and it had refused a payment arrangement offered by the company to pay its outstanding debt by monthly instalments of $10,000. We subsequently put the same payment arrangement proposal to the ATO but included an explanation as to the likely return to the ATO if the company was placed into liquidation together with details of certain steps which the company had taken to improve its profitability. The ATO accepted the payment arrangement and agreed to withdraw the statutory demand which it had issued.
After the above payment arrangements were accepted, the companies obviously needed to ensure that they traded profitably in the future and could meet required ATO payments and pay debts to other creditors. In both of the above cases, the companies’ directors sought advice from us and with this assistance they were able to continue to trade profitably.
Get in Contact with Us
We may be able to assist you with your tax debt and any problems you are having with a business or company you trade, so we encourage you to get in contact with us for a free, no obligation discussion.