Company collapses via court order double as tax department chases unpaid debts

Skittish creditors are taking matters into their own hands and forcing companies to liquidate over fears of never seeing their money again.

New data from the corporate regulator, the Australian Investments and Securities Commission (ASIC), has revealed that the number of court-appointed company liquidations has spiked drastically.

In the first six months of the current financial year, 1,047 companies were forced to shutter their doors for good.

That’s nearly equal to the total court wind-ups for the entire 2022-23 financial year, which came in at 1,081.

Analysis by insolvency firm RSM Australia Restructuring and Recovery said this put court actions on track to double for the remainder of this financial year.

The analysis also noted that these were activity levels that had “not (been) seen for almost 10 years”.

The tax office is leading the charge, as are lending institutions impatient for their money back, when it comes to creditor-instigated wind-ups.

Just last week, reported that two popular Sydney Oporto chains had collapsed, after a court ordered the businesses into liquidation over an unpaid tax debt.

RSM partner Jonathon Colbran had noticed anecdotally a “significantly higher than normal” number of inquiries from embattled businesses facing legal action from creditors.

“More business owners are coming to RSM with director penalty notices issued by the ATO as a result of unpaid tax or superannuation – two of the biggest red flags that a business is in trouble,’’ Mr Colbran said.

And the issue is across the board.

He noted it wasn’t just construction, hospitality, retail and manufacturing businesses being impacted from company collapses, which he dubbed the “usual insolvency hot spot sectors”.

The not-for-profit sector, professional services and medical services sectors are also facing heat from unhappy creditors.

Currently, companies owe a staggering $50 billion to the tax office.

Of that, the bulk is made up small businesses, which account for 67 per cent of the total debt.

According to the tax department, more than 46,000 small businesses, private and wealthy groups, and public and multinational companies, with a collective tax debt of $14.8 billion, are not actively engaged with the ATO.

These would then fall into the basket of the tax office taking enforcement action against them, putting them at risk of enforcement action.

It comes as reported last month that RSM itself has been left to pick up the pieces of a failed Sydney manufacturing company part of the GDK Group, leaving behind more than $45 million in debt.

The group of businesses were ordered into liquidation over the failure to back hefty tax debts.

Some of Mr Colbran’s colleagues are overseeing the liquidation.

Earlier this month, new data from credit agency Equifax painted a sobering picture of the reality of Australia’s flailing business landscape.

Equifax’s Quarterly Commercial Insights found that business insolvencies have risen to a five-year high, long surpassing pre-Covid volumes.

And in a concerning discovery, in December, insolvencies jumped by 44 per cent compared to the same period the year before, according to the analysis.

“Total insolvencies in 2023 consistently surpassed pre-Covid volumes, due to challenging market conditions seen throughout 2023,” Equifax’s General Manager of Commercial and Property Services, Scott Mason, said.

“This trend continued through to the end of the year, with December having the highest monthly insolvency volumes in the past five years.”

Last year, 8471 businesses went bust.

Of that, a staggering 2349 construction firms collapsed in the past year — with fears more may fall soon.

Mass collapses of construction companies are usually the first signs of a struggling economy caught in the throes of inflation, as they run on tight margins and rely on supply chain prices staying the same.

CreditorWatch previously warned that business failures are likely to continue to rise over the next 12 months, from the current rate of 4.5 per cent to 5.8 per cent.

Shamefully, in 96 per cent of cases where small and medium sized businesses go under, only between zero and 11 cents is recovered for every dollar owed to out-of-pocket creditors.

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