The Australian Taxation Office has become the grim reaper of small business after statistics reveal it is behind nearly half the 1365 companies that have been served with wind-up notices in the past three months.
It is a scary trend that is expected to accelerate, according to one of the country's leading debt collection agencies, Prushka.
It comes as the federal government is cracking down on business and using the ATO as a weapon to claw back revenue to help plug the federal budget deficit.
Data crunched exclusively for Fairfax Media shows that in July 2008 there were 184 wind-up applications served on companies and the ATO was behind 27 per cent of them. Five years later, in July 2013, the ATO was behind 51 per cent of an estimated 613 wind-up notices. When state government entities are added to the mix, the percentages of government-initiated wind-up notices balloon to more than 65 per cent.
Given the rising unemployment, the decision by the RBA to cut official interest rates to record lows and the clunky transition of the economy as the mining boom bubble bursts, it is no surprise that more companies are going under.
The big surprise is the banks are small players in wind-ups, representing less than 5 per cent, and companies supplying services and products are also bit players.
Prushka said given the parlous state of the economy, all efforts should be made to work with struggling companies.
Prushka's Roger Mendelson says once a company is liquidated, the business is finished. "We have found that working with defaulting companies produces a far greater recovery than winding them up, provided that the business is viable and there is genuine goodwill shown by the directors to trade out of the situation," he said.
The ATO sees it differently. The commissioner of taxation, Chris Jordan, said recently: "We do cop a bit of flak about how we manage small business debt. But, again, it's about fair play on a level playing field. If we don't get the right balance, those who are not paying their tax may get an unfair advantage."
An ATO spokesman said the ATO took legal action, including wind-up proceedings, to collect debts where taxpayers were unwilling to work with the ATO, continually defaulted on agreed arrangements, or did not have the capacity to pay and did not take steps to resolve their situation.
The spokesman also contested the figures and percentage of company wind-up notices initiated by the ATO. "In 2008-09 (you quoted July 2008 figures of 27 per cent) we initiated 8 per cent of wind-ups and, based on preliminary figures, we are on track for a similar result in 2012-13 (you quoted February 2013 of 41 per cent and April 2013 figures of 47 per cent)."
Companies recently in the ATO's firing line include NSW-based Lollita Corporation, which says on its website that a wind-up order was "commenced by the plaintiff Deputy Commissioner of Taxation on 18/06/2013". Others include Konnectv, which received a wind-up application from the ATO on June 17.
Other statistics reveal two companies a day in the construction and building-related sector are collapsing, as late payments from creditors worsen, activity dries up and banks put the squeeze on funding.
Behind the statistics and companies failing lies a fascinating story. The fact that the ATO is becoming more aggressive in issuing wind-up notices to companies - 593 in the months of May, June and July - is a reflection of underlying insolvency as some have probably not paid their BAS, many wouldn't have paid their PAYG tax for their employees and it is likely they haven't paid super on behalf of employees.
As Mendelson says, there is a long time lag between a company being insolvent and then facing liquidation, so it is reasonable to presume that this is the front-end of an underlying trend of increasing SME insolvency.
The figures from Prushka show that in April 2013 417 companies received wind-up notices, with the ATO representing 47 per cent, other government entities 30 per cent, the banks 4 per cent and other 27 per cent.
July was the worst month, with a whopping 613 applications, with the ATO responsible for 51 per cent, government agencies 18 per cent, banks 6 per cent and other 25 per cent.
What is chilling is most of the wind-up notices will be fruitless, with minimal recovery. The banks worked it out during the GFC by adopting careful lending policies to businesses. They also secure loans with mortgages on properties and personal guarantees - both of which are low-hanging fruit in terms of recoveries.
The figures show applications by businesses are low because the costs are too high to liquidate a company. According to Mendelson, most businesses are prepared to go to the statutory demand stage but few are prepared to fund a wind-up. "This is because the official figures don't represent the full scale of insolvency but are just the tip of the iceberg," he said. Given the time lag involved, all will be revealed in the fullness of time.