avoid liquidation with ATO payment arrangement

Businesses experiencing rapid growth are often unable to keep up with the increased costs and expenses that arise. Without careful planning, a growing business can quickly fall behind in paying its debts including tax debts.

We were referred a client recently by their accountant. The business was struggling to meet its expenses due to its rapid expansion and it owed a large tax debt. Below is the story of how we helped the business avoid liquidation by negotiating an ATO payment arrangement.

Background

We had an initial meeting with our client and established the following facts:

  • The business had expanded at rapid rate which resulted in higher expenses;
  • The businesses’ expenses created a negative cashflow for a prolonged period;
  • A significant portion of the business’ expenses related to employee wages and superannuation;
  • The business owed over $220,000 to the ATO;
  • There was a previous payment arrangement in place with the ATO but the business had defaulted on the arrangement;
  • As a result of the default, the whole tax debt was now due and payable;
  • The ATO had issued a statutory demand claiming over $180,000. A statutory demand is the first step the ATO takes to place a company in liquidation; and
  • The company’s accountant attempted to negotiate a further payment arrangement with ATO but was unsuccessful.

Options Available to Our Client

When a company is unable to pay its tax debts, in particular where the circumstances are similar to our client, the options available are:

  • Liquidate the company;
  • Appoint an Administrator and put forward a proposal for a Deed of Company Arrangement to avoid liquidation; or
  • Renegotiate a revised payment arrangement with the ATO.

Successful Outcome

Our client thought the business could be profitable in the future. They therefore did not want to place the company in liquidation. Additionally, appointing an Administrator was not really a viable option given the costs involved and the damage this would cause to the business. The client therefore engaged us to negotiate a further payment arrangement with the ATO.

As the ATO had commenced recovery action and had rejected our client’s previous proposal for a payment arrangement, we quickly contacted the ATO. We informed the ATO that they would receive little or no return if the company went into liquidation and that a payment arrangement was the best way for them to recover their debt.

We also put a proposal for a payment arrangement to the ATO which involved an up front payment and then manageable monthly payments after that. The ATO accept the proposal and our client has been able to comply with the terms of the arrangement. The renegotiated payment arrangement allowed our client to manage their cashflow in the short term and avoid liquidation.

Contact us

It is not too late to save your business if you have defaulted a previous payment arrangement and have received a statutory demand or the ATO has taken another type of recovery action. So, please contact us for a free, no-obligation consultation. We will discuss all options which may be available to you.

Posted on 08-10-20 in ATO Debts, Business, Business insolvency, Informal Arrangements / ATO Payment Arrangements, Liquidation.