Author
Marcus PetrovicDirector & Head of Client Strategy
We recently worked with a Sydney construction company that had built up close to $400,000 in debt, most of it owed to the ATO. The directors had spent years trying to keep projects moving while dealing with site delays, rising material costs, late paying clients, and fixed price contracts that stopped making money halfway through the job.
By the time they reached out, the business was under serious pressure. The ATO debt kept growing every month because interest and penalties were still being added. Suppliers were tightening terms. Cash flow was unpredictable. The directors were stuck using incoming payments from new jobs to cover old debts and overdue tax obligations.
From the outside, the business still looked busy. The reality was very different. The company was still winning work and bringing in revenue, but the debt sitting behind the business had reached a point where it was becoming impossible to move forward normally.
The directors assumed they were heading towards Liquidation. They were not.
After reviewing the company properly, we helped them enter a Small Business Restructure. Through the Small Business Restructuring process, the debt was reduced from around $400,000 down to $125,000 and locked into manageable monthly repayments over roughly two years.
The business is still operating today.
How Construction Businesses Ended Up in This Position
A lot of builders did not run into trouble because of one bad decision. Most were hit by several problems at once.
During the COVID period, construction sites slowed down across the country. Jobs were delayed, projects blew out, and payments took longer to come through. At the same time, operating costs climbed sharply.
In this case, the business was dealing with:
- clients paying invoices late
- labour shortages
- increased fuel and vehicle costs
- rising supplier costs
- material price increases across multiple projects
- fixed price contracts signed before costs increased
Steel prices alone increased heavily over a relatively short period. Builders who had already locked in pricing on older contracts had very little room to recover those increases. A job that looked profitable at the start suddenly was not making money at all. That is where many directors got caught.
The business itself was still active, but the margins disappeared while tax debt kept building quietly in the background. BAS obligations started falling behind. Payment arrangements became difficult to maintain. The ATO debt continued growing because the business never had enough cash flow to properly catch up.
We have seen this exact pattern across the construction industry over the past few years.
The Australian Taxation Office has also increased its debt recovery activity in recent years, particularly around unpaid business tax obligations and Director Penalty Notices. According to the Australian Taxation Office, Small Business Restructuring is designed to help viable businesses continue trading while managing existing debt obligations.
The Business Was Still Viable
This is the part many directors get wrong.
Just because a company has serious ATO debt does not automatically mean the business needs to shut down.
In this case, the company still had:
- active projects
- regular client work
- experienced staff
- future pipeline opportunities
- consistent revenue coming through the door
The business still had work coming in, but the debt had grown too large to clear through normal trading conditions.
That is the point where Restructuring starts becoming a real option.
A business can still be commercially viable while being financially overwhelmed by historic debt. That is exactly what a Small Business Restructure is designed for.
For accountants with construction clients carrying ATO debt, this is often the stage where early insolvency advice can help preserve more options.
What Is a Small Business Restructure?
A Small Business Restructure allows eligible companies to continue trading while working through a formal debt restructuring process. Unlike Liquidation, the goal is to keep the business operating.
Directors stay involved in running the company while a restructuring plan is put forward to creditors based on what the business can realistically afford to repay.
For many businesses dealing with ATO debt, this can provide immediate relief because interest and penalties may stop accruing on certain debts during the process.
That was a major turning point for this company. Instead of watching the debt increase month after month, the directors finally had a fixed number to work with.
How the Debt Was Reduced from $400,000 to $125,000
Once we reviewed the company’s financial position, cash flow, and ongoing work pipeline, it became clear the business could still survive if the debt was brought back to a manageable level.
The focus was not just reducing debt. The repayment plan still needed to work in the real world. There is no point putting a business into an arrangement it cannot actually maintain six months later.
We worked through what the business could realistically afford each month without creating more cash flow pressure during active projects. After working through the numbers properly, a restructuring proposal was put forward to creditors.
The final outcome reduced the total debt from approximately $400,000 down to $125,000. That amount was then repaid monthly over about two years.
Most importantly, the debt stopped growing. The directors were no longer chasing a moving target every month while trying to keep projects running.
Instead of spending every week reacting to overdue debt, they could focus on:
- completing projects properly
- improving cash flow
- managing staff
- rebuilding supplier relationships
- pricing future work more accurately
Once the financial pressure settled down, the business could start operating more normally again.
Why ATO Debt Becomes So Difficult to Manage
ATO debt usually builds slowly. A business falls behind on BAS during a rough period. Cash flow tightens. A payment arrangement gets missed. Then another quarter passes before the business has fully recovered.
Before long, the debt becomes far larger than directors expected.
The hardest part is that many businesses keep trading normally while the pressure builds in the background. From the outside, things can still look completely under control.
Internally, directors are often juggling:
- overdue tax obligations
- supplier pressure
- payroll stress
- creditor calls
- personal stress at home
- concerns about Director Penalty Notices
By the time many directors ask for help, they already believe the business has run out of options. That is not always true.
Depending on the situation, there may still be pathways available through:
- Small Business Restructure
- Voluntary Administration
- Safe Harbour
- negotiated repayment arrangements
- broader business Restructuring strategies
If you are dealing with growing tax debt, our guide on understanding ATO business payment plans explains some of the options available to Australian businesses.
Why Timing Matters
One of the biggest mistakes directors make is waiting until creditor pressure becomes impossible to manage before speaking with someone.
Once cash flow completely collapses or legal recovery action starts escalating, the situation becomes much harder to stabilise.
In this case, the directors reached out while the business still had:
- active contracts
- incoming revenue
- staff in place
- industry demand
- a realistic pathway forward
That made a huge difference to the outcome. The company avoided Liquidation, reduced its debt significantly, and kept trading.
Today, the directors are focused on running projects and rebuilding the business instead of constantly dealing with mounting ATO pressure.
There Are Often More Options Available Than Directors Realise
A lot of directors avoid getting advice because they think someone is immediately going to tell them to shut the company down.
In reality, many businesses simply need the debt structure fixed before they can move forward properly again.
This Sydney construction company is a good example of that. The work was still there. The staff were still there. Clients were still engaging the business. The debt had simply grown faster than cash flow could recover after several difficult years across the construction industry.
By using a Small Business Restructure, the directors were able to reduce the debt to a level the business could actually manage while continuing to trade.
If your business is dealing with growing ATO debt or ongoing cash flow pressure, understanding your Business Restructuring options earlier can make a significant difference to the outcome.
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