The last few years have fundamentally changed the way that creditors interact with their customers. Whilst patience and procedure are key when pursuing debts, the post pandemic landscape has often required greater flexibility from credit officers looking to collect or establish payment plans.

This is becoming especially true in the wake of rising activity from the ATO and an ensuing increase in insolvencies. From the start of the pandemic up until early this year, the tax office had fallen into a bit of lull in terms of its collection activities. This all changed in April when the ATO once again began firing off letters and phone calls to more than 50,000 directors, although in many cases these were warnings of DPNs planned to be issued rather than actual DPNs.

A DPN, or “Director Penalty Notice” is a letter from the ATO usually demanding summary payment of tax liabilities within 21 days. Recent changes to the way that these notices function has meant that directors are also personally liable for their company tax debts (with some exceptions and defences). If their debts cannot be paid off in full, the options left to directors are to either:

  • Appoint a liquidator for a liquidation
  • Place the company into voluntary administration;
  • Or enter into a small business restructuring plan

With these more severe personal liability and payment restrictions in place, it is likely that we will see more companies declaring insolvency. As a creditor of an insolvent company, it is important to understand how these processes function in order to properly lodge your claims.

How to Review Your Position as a Creditor

Equally important to lodging your claim as a creditor of an insolvent company is to review the collection practices and terms associated with that debt. One of the ways that a liquidator can make recoveries is through pursuing preference payments to unsecured creditors 6 months before the relation back day. Whilst there are defences available to these claims it is good practice to take the time and review your internal debt collection procedures and ensure your company is not opening themselves up to receiving preferential payments. This can be done by:

  • Ensuring thorough credit worthiness investigations are undertaken prior to entering formal agreements. This helps to prove that any payments were taken in good faith and without knowledge of insolvency provided the results do not indicate as such.
  • Including favourable terms in any new formal agreements such as void payment and appropriate release clauses.
  • Reviewing supply terms and conditions.
  • Considering other forms of security on debts.

If you would like to discuss any of the above strategies, or your financial position has been impacted by a recent insolvency, please contact us for an obligation free consultation.


This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.