A new inquiry is looking into the ATO’s role in corporate insolvency. 

The Parliamentary Joint Committee on Corporations and Financial Services is running the Inquiry into Corporate Insolvency in Australia, seeking ways to limit the fallout from businesses collapsing.

The probe is focusing partly on the role of the Australian Taxation Office as Australia’s biggest creditor when it comes to corporate insolvencies.

The ATO is a creditor in 74 per cent of all company insolvencies, often as the largest creditor and sometimes as the only creditor.

“Ninety-two per cent of unsecured creditors get zero per cent returns in the event of a business collapse and 13/14 closing businesses are letting themselves be deregistered rather than formally shutting down,” Senator Deb O’Neill, chair of the inquiry, has told reporters. 

“This is hardly a vote of confidence in the current insolvency regime. Our insolvency system is a historical artefact that has been subject to much ‘tinkering’, according to witnesses.

“Evidence received today in Canberra considered the high cost of insolvency, market failure where insolvency practitioners subsidise assetless insolvencies by overcharging other entities estimated at $43 million (2013), and the relationship between the ATO’s use of director penalty notices that trigger insolvency action - regardless of the capacity of the entities to pay for insolvency services,” Senator O’Neill said.

A submission from Australian Small and Family Business Ombudsman Bruce Billson suggests the inquiry comes at the right time. 

“With the resumption of ATO debt collection, compounded with inflation and interest rate rises, stretched global supply chains, rising costs of materials and energy and labour shortages, corporate insolvencies have started to return to pre-pandemic levels,” Mr Billson said.

“Insolvency levels in the construction sector are returning to pre-pandemic levels, the quickest of all sectors, accounting for 26 per cent of total corporate insolvencies in 2021-22. In the September quarter of 2022, 605 construction firms entered external administration or appointments, up from 445 in the June quarter and 271 in the March quarter.”

He said this was “a record high” in the current Australian Securities and Investments Commission insolvency statistics time series.