Following the discontinuation of JobKeeper and other government support measures which were introduced at the peak of the covid-19 pandemic, the ATO is set to ramp up enforcement in line with the governments ambition to revert to a “business as usual approach”.

It is not expected that the ATO will be overly aggressive but they will definitely go back to how they were operating prior to the covid-19 pandemic.

The ATO’s attitude is more likely to be somewhere along the lines of “if we need to instigate payment plans, let’s actually enforce them, rather than putting a payment plan in place and allowing leniency on compliance in relation to that plan”.

According to data released by ASIC, approximately 8,000 businesses across Australia go into external administration each year. In 2020, only 5,000 businesses went into administration, with another 3,000 businesses on the precipice of insolvency.

It is also anticipated that another 2,000 businesses will fail this quarter, bringing the total number of businesses likely to become insolvent in the second quarter of 2021 to 5,000. 

Although insolvency numbers have increased in 2021, according to CreditorWatch “it’s the increase we needed to see. “We need to get back to at least pre-COVID administration levels and away from the synthetic environment we’ve lived in for the past 12 months”.

There is set to be a sustained increase in administration numbers until they reach normal levels. It is not anticipated to be a tsunami of insolvencies that the media talked about last year, but the fact is, companies need to be allowed to fail as this is how the economy works.

According to CreditorWatch’s February Business Risk Review, external administrations increased by 61 percent from January, but have experienced a 50 percent drop from those recorded in February last year. 

CreditorWatch expects to see an increase in company-led restructuring through 2021, and proposes that market conditions and improving business confidence are enabling an environment that supports doing so. 

There is plenty of capital available for the right businesses, and stakeholders such as the federal government, the Australian Taxation Office and due to the current economic conditions the banks are much more willing to support restructuring solutions than they may have been in the past.

However, in conjunction with the Tax Office, banks are more inclined to pivot away from accommodating the leniency seen throughout the pandemic. It is likely to expect for banks, like the ATO, to become more “front-footed” for the remainder of 2021. 

Loan-to-own transactions are becoming an emerging trend in restructuring. This is when the lender takes control of the business using the insolvency process to restart the business and implement a brand new business model.

It is highly likely to become a more popular choice for more businesses to use the restructuring and insolvency process to resize and reshape their operations.

Although the pace at which the ATO will crack down on enforcement can’t yet be deciphered, stakeholders can anticipate that there will be a marked shift in the ATO’s approach through the rest of 2021.