Just as businesses thought that they had survived the COVID-19 pandemic, there was further disruption as a result of the 2022 floods in South East Queensland and Northern New South Wales. Many of the businesses impacted by the flooders were already owing large amounts of tax debt to the ATO and were looking forward to being back in business and repaying the debt post COVID-19.

So, what can these businesses do?

Options

It is understandable that business owners would not want to place their company in liquidation. In fact, our advice is usually to liquidate a business only as a last resort. Instead, depending on the company’s circumstances, businesses may look at the following options to help pay their debts.

Payment Arrangements

A company can seek to negotiate a reduction in interest and penalties with the ATO and then a payment arrangement to pay the debt owed.  However, the ATO will not reduce their core debt outside of an insolvency arrangement. The ATO has been very lenient since the onset of the pandemic in agreeing to reductions in interest and penalties and payment arrangements.

Voluntary Administration

Whilst the ATO will often waive interest and penalties, the ATO will almost never waive a core tax debt itself unless it is through an insolvency processes. One of these processes in which a company can use to compromise a core debt is voluntary administration.

Voluntary administration is a way to avoid placing a company into liquidation. It allows for directors to put forward a proposal to the company’s creditors, including the ATO, which compromises their debts by way of a Deed of Company Arrangement.

To use this process, a voluntary administrator will be appointed to manage the company’s business, investigate the company’s affairs and report to affairs to creditors of the company. Part of the report includes details of a proposal for a Deed of Company Arrangement and a recommendation whether the to accept the director’s proposal.  Creditors then vote on the proposal and if it is accepted then all unsecured creditors including the ATO are bound by the proposal and their debts are compromised.

Small Business Restructuring

While voluntary administration is a way to compromise debts with the ATO, the process itself is expensive. In 2021, as a result of the effects of the Covid-19 pandemic on businesses, the Federal Government introduced the small business restructuring (SBR) process.

The process is similar to a voluntary administration where a proposal with put forward to creditors to compromise their debt. The aim of the SBR however was to streamline the process and remove certain reporting requirements of the insolvency practitioner, thereby reducing the cost.  Under the process the directors also retain control of their company at all times.

We have previously written about the eligibility and how it can help companies settle tax debts.  Essentially, the SBR process allows you to settle a tax debt for less than what is actually owed in a cost effective manner.

Contact Us For Assistance

If your business is affected by the floods and can no longer keep up with tax obligation, contact us for a free no-obligation consultation. We can provide you with options to deal with tax debts.