Accountants Christmas ‘To Do’ Before You Unwind

With 2020 moving into the rear vision mirror and a new year soon to be upon us, it is time for a quick stocktake of where you are at so that you can enjoy your break with a clear mind, ready to start afresh in January 2021.

One thing that will certainly ruin your break will be telephone calls and emails from stressed out clients needing urgent assistance.To avoid this you may want to cast your eye over your client list to identify those that might fall into this category, nip them in the bud, and get that well-earned rest you need so you can recharge for what is likely to be a very busy year for accountants. Be particularly mindful of those clients who may be facing financial difficulties, as by helping them to resolve their financial woes you may be helping yourself get that uninterrupted break.

On a positive note the Government – recognising that many SME’s may face financial problems as a result of the COVID lockdowns – intend to introduce a small business restructuring regime, which is due to start on 1 January 2021 . This regime aims to provide a lower cost resolution of an SME’s financial difficulties. Of course, much of the detail is still to be released by Canberra however the concept is very much welcomed .

Broadly the new regime provides for:

  • Small business debt restructure
  • reduced complexity
  • reduced cost
  • a greater role for the company directors during the process
  • allows the director to retain control over the company throughout

These changes are intended to encourage more small businesses to seek debt restructuring earlier, thereby increasing their chances of recovery with the ultimate aim to facilitate a process whereby a repayment plan is put in place for the company to repay its existing debts, avoiding liquidation.

To qualify for entry into this new regime the company must:

  • Have creditors totalling less than $1million
  • Neither the company nor its directors which have previously availed themselves of the debt restructuring process
  • Must have all of its employee entitlements paid; and
  • Lodged all of its returns with the ATO

For those that don’t’ qualify but are still insolvent, the traditional Voluntary Administration and Liquidation pathways remain open.

Provide the advice that they don’t want to hear

On a more sobering note, failing to provide your clients with advice or providing your client with the wrong advice regarding their solvency can result in litigation being commenced against you.

We have recently been involved with a matter where it has been alleged that the directors traded their company while insolvent, potentially rendering them liable for the debts that were incurred by them during this time. While defending the action against insolvent trading, the directors have commenced an action against their accountant for allegedly failing to provide them with advice that they were insolvent and in failing to advise them of their responsibilities upon becoming aware of insolvency. This litigation has resulted in significant work being undertaken by the accountant, their solicitors and the professional indemnity insurer in order to fend off these allegations.

In the recent podcast Professional indemnity insurance claims: Know your mandate | CPA Australia, Drew Fenton from Fenton Green when discussing PI claims said :
“Our experience here is that ‘it can’t be my fault’. And what we mean by that is that if clients get into financial difficulty or a receiver manager is involved, they look to the professional firms who advise the client. The accountant is obviously at the top of the tree. Our view is that one must be extra cautious in these difficult times, as we have seen historically, that professional indemnity claims go up when the economy takes a downturn, and we see this no different this time.”

As self-preservation can be a strong motivator, we recommend that you protect yourself and your business by providing proactive advice to those clients in trouble to guard against any adverse actions.

De-registration is not always an option

Cessation of trade by a client doesn’t mean they automatically qualify for deregistration. Due to COVID-19, many small businesses may not recover to enable them to recommence trading in 2021. An avenue open to companies which are no longer trading is to have them deregistered by way of application to ASIC. However, this route can only be taken where the company has assets of less than $1,000 and has no liabilities. For those companies with debts or who are involved in litigation, liquidation may be the only option to address its solvency concerns.

While deregistration may appear to be the easier pathway, lodging of a false declaration with ASIC to enliven the deregistration process can have significant consequences. Recently ASIC has prosecuted directors for making false declarations regarding the company’s liabilities. In some cases, the liabilities omitted were as low as $20,000 as seen here, here and here.

So, while a deregistration may be for some an attractive solution it should only be used if the company has basically no assets and no liabilities. Accordingly, where a company is not trading but insolvent, the advice of a Registered Liquidator should be sought.


So, with the festive season approaching, it is time to take stock and make sure you have a chance to relax and smell the roses…or the plum pudding!

Best Wishes Brooke Bird

Adrian Hunter
Adrian Hunter

November 30

Adrian Hunter
Adrian Hunter

By actively working with all involved stakeholders, Adrian is able to formulate and deliver on agreed outcomes for the benefit of all parties involved