Options for Companies to Deal with Tax Debts

The most common options for companies to deal with tax debts are:

1. Pay the debts in full, possibly via:

   • A lump sum payment.

   • A payment arrangement.

   • Borrowing funds from a third party to us to pay the tax debt.

2. Small Business Restructuring (SBR).
3. Liquidation.

Small Business Restructuring

General Information Regarding Small Business Restructuring

1. To be eligible for SBR a company must:

   • Owe less than $1 million to creditors.

   • Have no overdue employee entitlements including superannuation/SGC.

   • Have no material overdue tax lodgements.

2. SBR involves the appointment of a Liquidator as a Restructuring Practitioner to assist with coming up with a proposal to settle a company’s debts.
3. The director(s) retain control of the company during the SBR period.
4. SBR goes for around 35 business days, being 20 business days for the restructuring practitioner to provide a report to creditors with the proposal and then 15 business days for creditors to vote on the proposal.
5. For a SBR proposal to be approved it must be approved by more than 50% in value of unrelated creditors.
6. An SBR proposal can take many forms, however, it will commonly provide for one or more of:

   • A lump sum up front payment from a third party.

   • The payment of funds over time from a third party or future trading profits.

   • The payment of funds from the sale of assets.

   The funds paid will then be distributed amongst creditors on an equal basis.

Cost of Small Business Restructuring

7. The initial cost of SBR will generally be between $10,000 and $15,000 plus GST plus the cost of a valuation of the company’s assets if required.

What is Required to be Provided to the ATO for Small Business Restructuring

8. The ATO will want to be provided with the following in respect of all SBRs:

   • Four years of financial statements.

   • Statements for any director loan accounts.

   • A restructuring plan – which we will assist with.

   • A list of the company’s creditors.

   • Details of the reasons for the company’s failure and a Business Plan to turn the company around – which we will assist with.

   • A future cashflow forecast – which your accountant will need to assist with.

   • An independent valuation of any material assets.

   • Possibly other information.

Further information regarding SBR can be found here.

Liquidation

1. Liquidation is a process used to shut down an insolvent business by appointing a registered Liquidator to the company.  It is commonly used where a business is not profitable and/or cannot be saved and/or SBR is not a realistic option.
   
2. The Liquidator (among other matters) sells a company’s assets, carries out general investigations, prepares and issues reports to creditors, reports any relevant matters to ASIC and after funds are recovered distributes any surplus funds to creditors.
   
3. A company can be placed into liquidation by its shareholders and if all shareholders agree then this can occur immediately upon a registered Liquidator consenting to act for the company.
   
4. A Liquidator is paid their costs from funds realised from a company’s assets.  Where a company has limited or no realisable assets a Liquidator may ask for an up front payment which may be between $11,000 and $15,000.

Further information regarding SBR can be found here.

Further Information and Assistance

If you wish to obtain advice or assistance regarding any of the above matters, please contact our Brisbane or Gold Coast office. Our experienced staff will be able to assist you.

The above information is for general informational purposes only and does not constitute legal or professional advice. If any references above are made to costs or prices these are provided for information purposes only and are not quotes for services.