You may have experienced the pressure of not being able to keep up with your tax debts, especially during the current period of economic uncertainty. If you are in this situation you are probably also wondering what can the ATO do to recover the tax debt they are owed.

This is the third part of a 3-part series where we look at the steps the ATO can take if you don’t pay your tax debts. In this article, we look at ATO bankruptcy or liquidation proceedings.

Generally, before the ATO takes any serious action is taken against you or your business, they will contact you or your accountant. And this is when you should engage with the ATO and negotiate a payment arrangement. Because if you don’t the ATO will take recovery action which could include bankruptcy or liquidation proceedings.

Personal Tax Debts – Bankruptcy Proceedings

If the ATO has obtained a judgment against you for $5,000 or more (currently $20,000 due to relief provided by the Federal Government in light of COVID-19), the ATO can take steps to initiate bankruptcy proceedings against you and make you a bankrupt.

Prior to commencing legal proceedings to bankrupt you, the ATO will issue a notice to you known as a Bankruptcy Notice. The Bankruptcy Notice gives you 21 days (currently 6 months due to relief provided by the Federal Government in light of COVID-19) from the day it is served on you to pay the debt.

If you fail to pay the debt claimed in the Bankruptcy Notice, the ATO will apply to Court to make you a bankrupt by filing a Creditor’s petition. Once you are bankrupt a bankruptcy Trustee will take control of and sell any assets you own which are able to be sold in bankruptcy.

More information about bankruptcy can be found here.

Companies – Liquidation Proceedings

If your company owes the ATO $2,000 or more (currently $20,000 due to relief provided by the Federal Government in light of COVID-19), the ATO can issue a Statutory Demand. A Statutory Demand does not need to be personally served and it can be posted by the ATO to your company’s registered office, generally your accountant. The amount claimed in the Statutory Demand is payable within 21 days of “service” (currently 6 months due to relief provided by the Federal Government in light of COVID-19).

If a company fails to comply with a Statutory Demand, the ATO can make an application to the Court to have the company placed in liquidation. This will result in a Liquidator taking control of and selling the company’s assets and pursuing any available recovery actions, including viable claims for insolvent trading.

More information about liquidation can be found here.

What Can You Do to Avoid Bankruptcy or Liquidation

If you have tax debts that have been outstanding for some time, don’t wait until the ATO has issued bankruptcy or liquidation proceedings. Give us a call and we will be able to you help you implement the kind of solutions we have previously written about here.

If the ATO is trying to make you bankrupt or place your company in liquidation, you should urgently contact us for a free no obligation consultation so we can help you.