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A surprise bankruptcy notice


An IT professional had used the same accountant throughout his 12 years in business.

Without prior notice, the ATO served him with a Bankruptcy Notice. His accountant had forwarded no previous correspondence leading to the court action. It was a total, and somewhat nasty, surprise.

After investigation and several difficult conversations with his accountant, the business owner established both his accountant and partner – who’d taken responsibility for preparing, lodging and paying the organisation’s Business Activity Statements (BAS) – had been derelict in their duties in passing on critical correspondence.

Now the business owner was behind in lodging his last eight BAS and owed the ATO $98,789 in unpaid Goods and Services Tax (GST) and Pay As You Go Withholding (PAYGW), plus another $28,892 in interest and penalties.

Worse still, he didn’t have the funds to pay. Unaware of their liabilities, he and his partner had spent the ‘surplus’ cash on holidays and other lifestyle expenditure.


The ATO was entirely reasonable in serving the Bankruptcy Notice, and there was nothing to be done.

The owner was forced to choose between finding a large sum he didn’t have or submitting to the bankruptcy and starting over.

This illustrates the need for sound management practices and reporting, and how small issues can escalate into major crises. Had the owner implemented basic controls (i.e., basic reporting obligations regarding the business’ compliance obligations and performance measures, so he knew how much cash was ‘surplus’ and available for lifestyle), the entire matter would have been foreseeable and avoidable.

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