Legislation has recently been introduced into Parliament for the new debt restructuring process. The new process, which is only available for companies with debts less than $1 million, is intended to commence from 1 January 2021.
The new process will involve a “small business restructuring practitioner”, who must be a Registered Liquidator, helping the business prepare the plan, certify the plan to creditors and oversee disbursements once the plan is in place.
Next year there will be new regime for company directors – it is aimed at ensuring that all Australian company directors are accurately identified and that when promoting and operating a company no false names and identities will be used.
This has long been a problem for accountants, particularly those engaged in insolvency. The problems have not just been in the use of fictitious identities to facilitate illegal phoenix activities but also generally in trying to ensure that there is integrity and reliability of the public record for matters like the details of current and former directors of all registered companies.
Many have likened the removal of insolvency protection measures to the economy dropping off the edge of a cliff. That will happen on 1 January 2021. But the Government has a plan!
Remember March 2020? A long time ago wasn’t it? The world was full of panic, there were suddenly long queues at Centrelink and businesses were in crisis. Nobody was calling their accountant, because the discussion would be a difficult one – and nobody wanted to lodge the March quarter BAS as it would crystallise a further debt which not be able to be paid.
If you have a tax debt and enter bankruptcy, during bankruptcy any tax refunds will be kept by the ATO and set-off against your tax debt.
After discharge from bankruptcy, which is 3 years from acceptance of your Bankruptcy Form (formerly a ‘statement of affairs’) unless there is an objection to discharge, you will then resume receiving your tax refunds.
The Australian Taxation Office, or more correctly the Federal Commissioner of Taxation (“the Commissioner”), is no ordinary creditor. The Commissioner doesn’t supply goods or services, doesn’t render tax invoices, and doesn’t close your account when you don’t pay.
The Commissioner’s rights as a creditor do not arise from contract, but from the operation of law, in particular the Taxation Administration Act 1953 (“TAA”). In general terms, the TAA creates a statutory debt.
As the Federal Government’s measures for temporary relief for financially distressed businesses expire on 31 December 2020, new insolvency procedures will come into effect on 1 January 2021.
The aim of these new procedures are to give small businesses a fighting chance. The new procedures will apply to companies with liabilities of less than $1 million. The $1 million threshold covers about 76% of businesses.