Historically once ATO and major banks start escalating collection activity, it’s not uncommon to see insolvencies rise.
Once that begins, how can you ensure you maximise your business’s ability to recoup monies owed?
Similarly, what steps can you take to deal with customers in these circumstances?
Finally, how can you make sure your risk is managed to mitigate the consequences of the appointment of an insolvency practitioner to your customer?
The ATO’s involvement in the insolvency space is well known, and historically, together with the major banks, the ATO has been a major driver of insolvency activity in the economy.
Since COVID-19 in 2020, the ATO has not been pursuing large-scale enforcement of tax liabilities, but it is likely that insolvencies will increase should the ATO take a more assertive position.
The letters sent to company directors in April 2022 were seen by many as a ‘warning sign’ that the ATO will revert to its pre-COVID practices, with further action via Director Penalty Notices being issued.
ABC News reported that the “ATO's 2020-21 annual report, total debt was $58.8 billion, and just 65 per cent of that — $38.5 billion — was "collectable", meaning likely to be paid”.
ABC News also reported that “Equifax data suggests that, while the overall rate of insolvencies in March 2022 was up 5 per cent on last year, construction insolvencies were 28 per cent higher”.
Many readers will themselves have either direct involvement in the building and construction industry, or exposure to that industry.
The building and construction industry otherwise has significant impacts on other parts of the economy and can result in a domino effect impacting many suppliers and other contractors. Recently, there have been some very high-profile insolvency appointments in the building and construction industry.
The key here is for you to ensure that your business is in a position to address risk associated with insolvencies, and that you are properly informed of relevant changes to the risk profile and trading status of your customers.
A robust set of terms and conditions and a properly informed credit team will go a long way to mitigating risk. For guidance on terms and conditions, please see our May 2022 article ‘Strategies to reduce risk with the right contract terms and conditions’ – originally published in the Australian Institute of Credit Management's 2022 Risk Report.
Holman Webb’s Commercial Recovery and Insolvency Group has decades of experience in the credit industry, and understands the importance of implementing suitable credit agreements and terms and conditions.
Partner Christopher Hadley and Special Counsel Andrew Tanna are on standby for businesses requiring assistance with reviewing, drafting or updating credit agreements and terms and conditions - and to commence litigation.
If you have any questions regarding the content of this article, please don’t hesitate to get in touch today.
We are pleased to invite you to join Holman Webb's Commercial Recovery and Insolvency Group for our upcoming webinar: 'Tips to improve commercial recoveries and increase cashflow', taking place from 11:30am (AEST) on Thursday 4 August.
Presented by Holman Webb Commercial Recovery and Insolvency Partner Christopher Hadley, and Collections Software Specialist Griffin Swanson, this interactive seminar will cover best practices for collections leaders.
Topics covered will include:
- What are the impacts of the risk you take on?
- What’s the worst that can happen?
- Why does this matter?
- Could increased ATO activity bring about more insolvency?
- Why does this impact on trade creditors?
- What are we expecting to see in the coming year?
- What can you do now, to mitigate this risk?
- What is the simplest, and most effective way to protect your credit risk?
- Important terms and conditions
This seminar will be highly relevant for CEOs, CFOs, Credit Managers and Collections Specialists.
Date: Thursday 4 August 2022
Time: 11.30 – 12.30pm AEST
CPD Accreditation: Attendees will be eligible to receive 1 CPD point
Lunch is on us!
- All webinar registrants will go into a draw to win one of ten $30 Uber Eats vouchers!
- Winners will be selected at random at 9.00am on Thursday 4 August.
- Winners will receive their Uber Eats voucher code by 10:30am on Thursday 4 August.