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01 Mar 2022

Leveraging small business restructuring to survive and thrive in 2022 & beyond

Businesses with tax debt must act now before the ATO does!


It’s been reported that the Australian Taxation Office’s (ATO) business debt has doubled from 24.9 billion (30 June 2020) to a colossal 53.8 billion (30 June 2021). And that data is now eight months old. We all know the ATO has taken a very soft approach for the last two years. Typically, it applies to wind up an average 100 companies a month, but applications were abandoned during the COVID-19 period. This means 2,400 companies—at least—that would have ordinarily been wound up, are still trading with its directors incurring debt that they cannot pay. This is why tax debt has more than doubled over the last two years.

We speak to many accountants across the country and know many businesses kicked the 'tax can' down the road. This approach worked while the ATO has not actively collected its debt, but the ATO will commence an aggressive debt collection approach. The Worrells teams are concerned that at “crunch time” businesses will be unable to pay the debt and the ATO will simply proceed to wind them up.

While we don't expect the ATO to take aggressive debt collection activity until the second half of 2022, possibly even into 2023; however, we urge businesses that want to survive and ideally thrive must act now with one of two options:

  1. ATO debt negotiation

  2. Small business restructuring (SBR)


ATO debt negotiation

Where businesses only have a tax debt problem (i.e. no other creditors outstanding or likely to be outstanding), then a repayment agreement with the ATO is definitely appropriate to consider. Many businesses have successfully negotiated an ATO repayment agreement during the COVID times. However, it’s increasingly clear that ATO’s goalposts are moving—what was acceptable 12 months ago, is no longer acceptable. It’s critical that any repayment plan is affordable because any default in the future could create far more difficult future repayment terms.

At Worrells, we’re working with several businesses to negotiate repayment agreements that is ensuring their survival.

Small business restructuring plan

The small business restructuring (SBR) was introduced in January 2021 for small businesses to navigate through COVID challenges. Largely, SBRs have been unleveraged with only a handful of appointments each month. We believe SBRs are a very valuable tool available to eligible businesses that have debt issues, particularly tax debt. Full details of how a SBR works can be found click here. In short, it gives business directors/owners an opportunity to develop a plan with a qualified practitioner to address any legacy debt issues and provide comfort in knowing they can trade successfully going forward without the fear of the legacy debt impacting their business. It also gives directors comfort knowing they’re not liable for insolvent trading moving forward.

While very few SBR plans have been put forward nationally, we’re aware of creditors (including the ATO) agreeing to receiving a return of less than 20 cents in the dollar. That can be the difference of surviving and not surviving in the long term. This is a tool that we strongly recommend those businesses with debt to consider.

At Worrells we can discuss both of these options, among others. But the message that is most critical is ACT NOW! Those who proactively address debt issues now—while there is time—will set themselves up for long-term success. Those who don’t, will inevitably struggle to survive. The ATO will seek to recover its debt: it’s only a matter of time.

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