Lots of companies have rung up tax and other debts as a result of Covid-19. The ATO is unlikely to settle a company tax debt (other than reducing interest and penalties) without the company entering formal insolvency.

This is how we helped a large company settle its tax and other debts through voluntary administration.

The Background 

The company was referred to us by its accountant. Its business had been profitable in the past. However, it had to cease trading for four months due to Covid-19 lockdowns in the major markets where it traded.

The directors had terminated the employment of more than half the company’s employees, vacated the company’s premises and reduced other costs. However, the company was still left with various debts including:

  • $950,000 to the ATO (all post Covid-19);
  • Over $250,000 to its former landlord (the landlord had no personal guarantees);
  • Over $600,000 to customers who had pre-paid for services the company had not provided, as its business had been forced to close; and
  • Over $150,000 to other creditors.

Options available

The options available included:

  • Selling the business to a related entity for fair value (which was likely minimal given Covid-19);
  • If the company was unable to be traded profitably in the future, liquidation; or
  • Voluntary administration to settle the company’s debts via a Deed of Company Arrangement.

Voluntary administration

The company’s directors obtained further advice from solicitors and their accountant. The directors decided they wanted to appoint us as administrators and put forward a proposal for a Deed of Company Arrangement.

Period of voluntary administration

The company was in administration for a period of about one month. As administrators, we conducted investigations and prepared a report to creditors detailing the company’s background and reasons for failure and other information required under the Corporations Act 2001 (Cth). We also paid all debts and expenses incurred while we were administrators (as we are required to do) and lodged activity statements and report PAYG Tax to the ATO.

Deed of Company Arrangement

The directors proposed for a Deed where they would cover the costs of the voluntary administration (some of which the company had insufficient funds to pay) and a further $100,000 would be distributed to creditors. The $100,000 payment was not available to customers as the company agreed to provide future services to affected customers who had already paid for them, to maintain business relationships.

In our report to creditors we explained that:

  • The company failed solely because of having to close due to Government lockdowns as a result of Covid-19;
  • In liquidation there would be no return to creditors and the employment of the company’s remaining 20 employees would be terminated;
  • The proposal for a Deed would provide a dividend to creditors (of about 7 cents per dollar); and
  • Customers who had paid the company but had not received services would still get those services when the company was able to provide them.

We held a meeting of creditors to vote on the proposal for a Deed. All creditors who attended the meeting voted for the proposal including the ATO who were owed over $950,000. This was a great outcome for the company and it saved it from liquidation.

Total cost involved

The total cost of the appointment including money paid under the Deed and third-party expenses paid during administration was under $200,000. Although this did not include wages and super which the company had pre-paid prior to appointing us as administrators. The directors had to pay part of this amount including the $100,000 to be paid to creditors under the Deed.

However, the company was able to compromise over $1.5 million in debt as a result of the Deed, so the directors thought this was a great outcome.

Contact us for assistance

If you need help with a company tax debt, the professionals at TAX DEBT SOLVED can help.  So, contact us for a free, no-obligation consultation today.

Struggling with Tax Debt?
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Tax Debt Solved
GPO Box 691
Brisbane Qld 4001

Email: mail@taxdebtsolved.com

Fax:  07 3221 8885
Phone: 07 3221 0055

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