Pre-Christmas restructurings surge in face of DPN blitz (and why it’s vital to move at lightning speed)

Aussie businesses are restructuring at a rate of knots as the ATO continues its tax debt collection offensive. And it doesn’t look like slowing down any time soon, which is why it’s crucial for directors and their accountants to be on the front foot coming into the new calendar year.

Looking at the latest Alares Credit Risk Insights, in the second half of October there was a spike in new SBR appointments, likely in an attempt to have SBR plans approved and finalised prior to Christmas.

And what’s driving the surge? Director Penalty Notices (DPNs).

This year there has been a particularly common question: “The ATO has just issued a Director Penalty Notice; what do we do?”. Well, it’s important to act quickly. Let’s say, at lightning speed. Accountants have been shocked to see how quickly a ‘Locked-down DPN’ appears on a director’s personal taxation portal, particularly those that have been late with their lodgements of BAS, IAS and/or SGC statements. It’s almost like the ATO applies a DPN on late lodgements as an automatic process once the outstanding returns are lodged. What does that mean? The penalty permanently locks down on the director and apart from paying the debt in full, there’s no ability to avoid personal liability.

That’s a key reason why SBRs are growing at a rate of around 200%. More directors and accountants are being educated on the benefits of the SBR process. It allows a viable business with debts of less than $1 million to deal with legacy debts that have been accrued as a result of an extraordinary event such as Covid, floods and bushfires. While SBRs were much maligned when they were introduced in January 2021, this style of appointment is now becoming even more popular than voluntary administration, which was once the only option available to directors to restructure their company. In fact, according to Alares, October was the first month in which SBRs accounted for more than 20% of all new insolvency appointments.

“The ATO remains the dominant driver of SBRs and insolvencies more broadly,” says Patrick Schweizer, Alares Director. “The ATO’s outstanding tax debt reporting remains in full swing, with approximately 29,000 businesses being subject to reporting in October – i.e., more than $100,000 outstanding for more than 90 days without effective engagement.”

Already it looks like we’re on track for a bumper year in restructurings. According to the latest ASIC insolvency statistics, there have been 1,015 restructurings for 2024-25 so far (as at November 3, 2024), compared to 1,424 in 2023-24, 447 in 2022-23, and just 70 in 2021-22 (understandable, given it was the Covid years and the SBR regime was brand new). And looking at Jirsch Sutherland’s own figures, last calendar year we handled 40 SBRs, while to October 31 this year, we have already handled 53.

If you’re wanting to know why SBRs are racing ahead as one of the solutions of choice for eligible small businesses – particularly those with a DPN hanging over the heads – just head to our dedicated SBR website: https://www.restructuring.com.au/

And please don’t hesitate to reach out to myself or any of my colleagues if you need guidance.

Chris Baskerville
Partner | Small Business Restructuring Practitioner | Registered Liquidator | Registered Bankruptcy Trustee
Jirsch Sutherland