Struggling SMEs should “act now”, urges business rescue specialist

Don’t fall behind on tax repayments

It’s BAS time – and SMEs are being urged to seek help immediately if they’re struggling to pay their tax because of pandemic-driven cash flow issues. Speaking up now could ensure business owners have more options to save their business or restructure, says national business rescue and insolvency firm Jirsch Sutherland.  

“Inconsistent cash flow has a huge impact on when and how a business can meet its tax obligations,” says Andrew Spring, Jirsch Sutherland Partner. “The lockdowns and restrictions are causing many businesses and individuals to struggle, and rising tax debts serve as a reminder to seek help. If you’re behind in your tax payments, it’s crucial to act quickly. While the ATO has been sympathetic about uncertain cash flows and made some changes to its normal practices – e.g., it suspended its normal collection strategy around April 2020 – this generosity won’t last forever.”

Spring says that if a business owner is in financial distress, it’s best to speak with a trusted adviser quickly, rather than wait another six to 12 months. “With the ATO likely to ramp up its enforcement activity over the next six months, it’s crucial to have those conversations now,” he says. “There may be fewer options available if you wait. A tax debt of $100,000 or more is a deep hole for most SMEs to climb out of without assistance.”

Aussie businesses owe the ATO more than ever

The ATO debt attributed to SMEs was $21.4 billion at FY20. “This reinforces that a significant number of SMEs have been majorly impacted by the COVID-19 disruptions,” says Spring. “And the trend of rising tax debt is expected to continue as the pandemic persists.

“Concerningly, a third of the SME ATO debt is housed in the construction industry, which has traditionally accounted for a disproportionately high level of insolvency appointments. Our fear is that these potentially terminal businesses may ‘infect’ their directors, owners, employees and stakeholders if action is not taken to address the financial imbalance.”

Business rescue solutions

Spring says Australia has some of the most advantageous business rescue legislation in the world, being both quick and commercially focused. Options include:

  • Payment plans: “These can be a useful tool to manage short-term illiquidity, but more decisive options should also be considered for businesses that have been severely affected and are carrying significant debt (including ATO debt) on their balance sheets,” Spring says. “This is even more relevant today, due to the continuing uncertainty surrounding economic conditions and business forecasts.”
  • Voluntary Administration: “This regime is Australia’s business rescue program. It provides an opportunity to not only defer payment, but also compromise the amount of the payment to a level that the business can afford.”
  • The new Small Business Restructuring Process (SBRP), developed in response to the pandemic. “It’s added another option to financially restructure and save a distressed business. Not only can you defer payment, but you can also negotiate the amount of the payment,” Spring adds.

“Both Voluntary Administration and the SBRP provide an opportunity for the total liability of a company to be reduced and deferred,” Spring says. “Talking to a business recovery specialist doesn’t mean it’s the end of the line; it can be an effective way to solve your business’s financial problems.”

Plan for the future

Fellow Jirsch Sutherland Partner Malcolm Howell, a Bankruptcy Trustee, says it’s also crucial for business owners and directors to look to the future “and not just consider what’s happening today”. “It’s vital to look at your current cash-flow situation and up to 12 months down the track,” he says. “It’s crucial to plan for now and for the immediate and longer-term future.”

While corporate and personal insolvency numbers are currently low due to government support measures and the ATO, banks and state revenue offices not yet focusing on debt collection, Howell says debts are mounting and pressure will continue to build. “I expect to see a continual, steady increase in personal and corporate insolvencies over the next 6+ months – but it’s difficult to predict the extent of it,” he says.

Howell says it’s equally important for individuals who are experiencing financial distress to seek help immediately. “There are more options for individuals than just declaring bankruptcy. However, it’s crucial to explore them as early as possible.”



About Jirsch Sutherland –

Established in 1984, Jirsch Sutherland is one of Australia’s leading national independent insolvency specialists. The Jirsch Sutherland team works closely with small and mid-size accounting, finance and legal firms – and their clients – to provide a wide range of expert corporate and personal insolvency services including liquidations, voluntary administrations, receiverships and bankruptcy.

With head offices in Sydney, Melbourne, Brisbane, Newcastle and Perth, supported by a network of regional offices, Jirsch Sutherland’s national reach combined with a local presence underpins the company’s ongoing success. For over three decades, Jirsch Sutherland has earned a well-deserved reputation for protecting and guiding clients through the insolvency process in a fair and ethical way.

In Western Australia, Jirsch Sutherland trades as WA Insolvency Solutions.

For further information:
Lisa Llewellyn
Llewellyn Communications
0419 401 362

Jirsch Sutherland