Quick Snapshot
- Industry: Labour Hire, Victoria
- Total Debt: $200K ATO
- Strategy: Pre-Pack Restructure
- Outcome: 100% ATO debt addressed, business continued
The ATO debt kept growing, and the business could not earn its way out.
Every cycle, there was not enough profit to bring the balance down. Enforcement was the next step, and for the director that meant the problem was no longer something time could fix.
The Situation
A Victorian labour hire company, operating within a larger group, had built up $200,000 in ATO debt. The director was stuck in a cashflow cycle where profit was never quite enough to service the debt, so the balance kept climbing.
The Problem
- $200,000 in ATO debt that grew with every cycle
- Not enough profit to service the debt, let alone reduce it
- ATO enforcement was escalating, including the risk of garnishee action, where the ATO recovers money directly from a company’s bank account or its customers
- A Director Penalty Notice was a real risk, a notice that can make a director personally liable for unpaid company tax
The Solution
A Small Business Restructure was considered first. This is a formal process that lets a business propose a repayment plan to its creditors without going into liquidation. Because the ATO’s position on labour hire businesses made approval uncertain, de Jonge Read® recommended a more reliable pathway.
de Jonge Read® implemented a pre-pack restructure: a process where the viable parts of a business move to a new entity so it can keep trading, while the original company’s debts are dealt with through liquidation.
This involved:
- Setting up a new entity within the existing group
- Transferring the business, staff, and contracts across at a commercially assessed value
- Placing the original company into liquidation to deal with the ATO debt
- Managing the transition so trading continued without interruption
The Outcome
- $200,000 in ATO debt extinguished in full, 100% cleared
- The business continued trading under the new entity
- All staff transitioned across, with no disruption to operations
- The rest of the group was unaffected throughout
Key Lesson
The outcome came down to how early the director made the call. Acting before enforcement arrived meant a structured process was still possible, rather than a forced result.
If you are a director watching ATO debt grow faster than your business can pay it down, the right advice at the right time is what creates the most room to move. Call de Jonge Read® on 1300 765 080 for a confidential, no-cost conversation.
This pre-pack restructure helped a Victorian labour hire company wipe $200,000 in ATO debt while keeping the business trading, retaining its staff, and leaving the wider group untouched.
Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.moc.arjd@ofni
Did you know?
Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.
