A day after his 52nd birthday, Andrew Christodoulou got a nasty surprise in the mail.
A letter from the Australian Taxation Office (ATO) in November last year read: "You have been issued with a director penalty notice for Superannuation Guarantee Charge amounts".
"A director's penalty notice. I've never heard of one," Mr Christodoulou tells ABC News.
"It rocks up on the doorstep. And my wife opens it with the rest of the mail. And it essentially says in no fewer words that you owe $437,000. You have 21 days to pay it."
He's thinking, 'it must be a mistake'.
"How the hell could I owe $437,000 — it is more than my mortgage," he says.
The ATO is alleging the company that Mr Christodoulou ran for 22 years, which went into voluntary administration in 2016 and shut down three years later, owes superannuation to workers it employed at the time.
Some of the alleged debts date back to April 2013 while Mr Christodoulou was a director of the security firm, Kudos Australasia.
Company directors are responsible for ensuring that the company's tax and super obligations are reported and paid on time.
If the company does not pay certain liabilities by the due date, the ATO can recover these amounts from the director personally, and do it after the fact, going after them as a former company director.
Through the pandemic, these powers were rarely used.
But after years of going easy, the tax office is back and it's going hard to recoup tax and super debts it says current and former directors owe.
The federal government is also backing the ATO.
It has instructed the tax office to chase more than $34 billion worth of debt owed by small businesses and self-employed Australians, many of which were put on hold during COVID.
The agency is issuing more director penalty notices, as well as garnishee notices, which allow it to take money directly from a person's bank account or employer.
This stronger action is pushing businesses into making the call to go into insolvency or face being forcibly wound up by the ATO.
It's a big reason why calls to debt helplines have skyrocketed and the rate of insolvencies is now tracking around peaks seen just after the global financial crisis.
'No clarification'
As he works to resolve the dispute, Mr Christodoulou says legal fees are piling up, and he fears the ATO may personally bankrupt him.
Mr Christodoulou agrees that workers should be paid their superannuation but argues the unpaid super debt should have been dealt with at the time.
"These debts that they are chasing were listed from 2013 — we're talking 11 years ago now," he says.
"If they [the ATO] had come to us in 2014 or 2015, and said, 'Hey, there's a $35,000 debt, or you owe John Smith $200, or you owe Frank Jones $400', we could have sorted it out," he argues.
"Back then it was absolutely doable.
But to come forward all these years later, with a figure that has no justification, no clarification around it, and give you 21 days to figure it out?"
The Brisbane-based company he set up in the 1990s installed audio-visual equipment, including security systems and CCTV technology, with IGA, McDonald's and Subway among its clients.
The company had taken on several large customer contracts, including one for the Commonwealth Games, that seemed attractive but ended up becoming more than the business owners could handle.
Cashflow dried up and debts, including unpaid super contributions, started piling.
Between 2014 and 2015, Mr Christodoulou says he applied for small business and personal loans to pay workers' superannuation guarantee charge liabilities and other debts owed.
By 2016, things had got so dire that Kudos called in administrators Mackay Goodwin to take over running of the business.
Mr Christodoulou says in late 2015, due to ill health, he stepped away from managing the company.
He adds that, as far as he knew, money owed to workers would be dealt with by the administrators as part of the voluntary administration process, where a Deed of Company Arrangement (DOCA) was entered.
A DOCA is effectively an agreement between a company and its creditors which sets out how the affairs and assets of the company will be dealt with.
Mr Christodoulou says he resigned as director of the company in July 2016 (although he remained an employee) due to ongoing stress-related health issues as well as anxiety and depression.
In October 2016 his sister became the sole director of the company, and met with Grahame Ward of Mackay Goodwin to place the company into voluntary administration.
His sister was put into bankruptcy when the company was wound up.
A 'downward spiral'
At that time the administrators calculated that the company owed more than $2 million to unsecured creditors, such as suppliers and customers.
Initial administrator reports put the superannuation owed at $137,769, but this figure was in subsequent reports altered down to $77,335.
By the end of the administration process, Mackay Goodwin was paid $449,844.
This comprised $319,735 during the DOCA and $130,109 during the liquidation.
This was higher than its initial estimates of the cost of the administration and ate into the funds available to distribute to other creditors.
"Creditors can refine debt throughout an appointment which can alter the final amount payable," Mackay Goodwin director and liquidator Grahame Ward told ABC News.
"All employee entitlements, including superannuation accrued during the administration period, were paid, in accordance with our obligations as administrator."
He said administrator fees increased significantly from the initial estimate, because that "the administration was more complex than expected involving the ongoing trading of the company leading into a Deed of Company Arrangement with variations and then a liquidation".
"While we were the administrators, all super accrued during the term of our appointment was paid in accordance with our responsibilities," Mr Ward said.
He said the company "was unable to meet its superannuation and other debts accrued up to the date of appointment of the administrators".
"The directors put forward a proposal for the company to enter a Deed of Company Arrangement, which ultimately failed after many months of trading," Mr Ward said.
"The business was however unsellable, and the company was liquidated.
"The matter was finalised in 2022."
Mr Christodoulou admits that back then mistakes were made in running the business and says, during that stressful time, he also started making bad health choices.
"You know, we choose the wrong food, we choose the wrong drink, and before you know it, you've put yourself into this spiral of unhealthy living," he says.
"It's just a downward spiral. And then you become incapable of running businesses properly."
Mr Christodoulou says it's near impossible to source records dating back more than a decade for a company that has been wound up, but that he kept some old paper pay slips in his garage.
He says, based on these records, his accountant thinks that in the worst-case scenario it may be possible the company may have owed about $40,000 for the periods of 2013 and 2014.
Tens of thousands of DPNs issued
The risk of directors being personally bankrupt if they don't pay workers' superannuation is one that the government has been warning of for some time now.
Not only were laws passed by the Gillard Labor government in 2012 to make directors personally liable for super debts, but Assistant Treasurer Stephen Jones has reiterated his view that unpaid superannuation is akin to 'wage theft' and the government will be cracking down on it.
According to ATO data obtained by ABC News, between July 1, 2023, and February 29, 2024, 13,454 DPN's were issued, and 2,881 garnishee notices were issued.
The DPN numbers are already tracking well above previous years, with 2022-2023 the year when activity began ramping up.
The ATO says "firmer debt collection actions" are needed because the agency "is committed to ensuring businesses that do not comply with their obligations aren't getting an unfair competitive advantage".
"The ATO prefers to work with taxpayers to resolve their situation through engagement rather than enforcement," an ATO spokeswoman told ABC News.
"But it is also the ATO's responsibility to ensure a level playing field, protecting other creditors, and supporting those who are doing the right thing."
However, financial counsellors worry that this sudden ramp up in activity is causing severe emotional and financial stress.
ATO debt recovery action 'leading cause' of SME financial stress
Phone calls to the National Small Business Debt Helpline have hit their highest on record, with ATO debt recovery action now being the leading cause of financial stress.
"It is the busiest we've ever been," says Anna Dooland, a financial counsellor at the Small Business Debt Helpline.
Over the past financial year there have been more than 4,000 calls to the National Small Business Debt Helpline, many on the verge of seeing their businesses collapse, and others being forced to shut shop because they can't afford to pay the tax office as fast as it's demanding.
"The phone is running hot — when we finish a call, there's another call waiting and everyone we speak to everyone is so stressed and so distressed, and many people are crying — they just they don't know what to do," Ms Dooland says.
"We're in a cost-of-living crisis, and I think all of those things together with the ATO's firmer action approach is seeing some businesses really feel the pinch."
Over May and June calls to the helpline hit unprecedented levels. In June there were 427 cases of small businesses calling in despair — the second highest in the Helpline's history.
May, which was a longer month, saw 484 reports, the highest in the Helpline's history.
On average there were 21.4 average cases being reported per business day, a 60 per cent increase compared with June 2023.
Ms Dooland says many of those being issued with DPNs are vulnerable people already in stress.
"There's been a break-up, they may still be impacted by a natural disaster, a flood or a fire, maybe their premises is still damaged and they're still going through the process of fixing this and now they have an additional thing to consider," she explains.
The personal effect of the DPN is that a director's family home and personal assets are at risk.
"That's a very frightening thing to consider when you only have 21 days to decide what to do," Ms Dooland says.
"If people do decide to liquidate their company, then they're in a situation where they've lost their business, perhaps they're putting employees out of work, and that will affect their family.
"Or if they decide to do nothing, they're actually accepting the debt as their own, and that can put their own family and their own house at risk."
Insolvencies track GFC levels
Jarvis Archer is a liquidator and says the rate of insolvencies is now tracking around peaks seen just after the global financial crisis.
"It's the highest number of insolvencies I've seen, and it's the busiest I've been in my 22-year career in insolvency," Mr Archer says.
"That's really been driven by that significant ATO debt that has been collected by the ATO with director penalty notices and wind-up notices.
"The director penalty notice has been the most used tool of the ATO since they've started their pandemic debt recovery clean-up."
In the 12 months to the end of May, company insolvencies totalled 10,774, up 36 per cent on pre-pandemic levels and exceeding the post-GFC peak of 10,757 in the 2012 financial year.
This is an average of 897 companies entering insolvency per month compared to just 661 per month pre-pandemic.
Although official ASIC numbers for June are not yet finalised, Mr Archer says preliminary numbers from available sources indicate total company insolvencies for June 2024 were 1,050, bringing the total for FY24 to over 11,040.
He says that means the rate of company insolvencies was 39 per cent higher than both FY23 and the pre-pandemic average.
Last financial year also eclipsed the previous record of annual company insolvencies, being 10,757 in FY2012 during fallout from the global financial crisis.
Mr Archer says DPNs "can come at any time and catch people off guard".
"Why that's such a significant impact for the director is that while they're dealing with the debt, trying to get their business back on track, they get this notice that gives them three weeks to sort out years of financial difficulty ," Mr Archer says.
"That then forces them to have to pay that debt, personally risking their home and personal bankruptcy."
He says many don't even know a DPN exists until years later.
"They (the DPNs) just go to the directors' personal address registered with ASIC, there's no copy of the letter sent to the accountant or to the company. And so, if the director misses that letter, there's nothing they can do. It's not a defence."
Call for the ATO to use 'greater discretion'
Ms Dooland says the Debt Helpline is also seeing increased use of garnishee notices allowing the ATO to take money directly from people's bank accounts.
She believes the ATO is being very aggressive and needs to give people more time to pay tax debts.
"Having gone from being so lenient to so quickly being having a firmer approach, especially in a time when there is a cost-of-living crisis, I think it's too soon," Ms Dooland says.
Ann Kayis-Kumar is the founding director of UNSW Tax and Business Advisory Clinic, which is also seeing more small businesses owners approach them for help on tax debts.
She says most of their clients are referred on from financial counsellors, community centres, and domestic violence support and lifeline support groups.
The average tax debt of clients that come to them is $90,000, but then that's on top of their other debts.
"DPNs are a method that they have been using, and they have issued tens of thousands of them," she says.
"Now, in many cases, that is entirely fair, and it's a very effective tool to quickly collect on debts.
"The challenge is when people who are really doing it tough get swept up in this, and there's no safety mechanism that is readily available to the ATO at its disposal to support these people."
She says it is "particularly problematic" in cases where they don't even know that they were director of that company.
"Where, for example, their abusive ex-partner has made them a director, the first time they find out that they're a director of this company for which they're going to be personally liable is when they receive that letter," she says.
Ms Kayis-Kumar says they would like to see law changes that would allow defences to a DPN being on grounds of coercive control in domestic violence cases.
She wants increased discretion for the commissioner to waive debts where people are in "financially vulnerable situations, or victims' survivors of financial abuse".
The ATO says "help and support remains available for those businesses who genuinely need it, and who engage with us early", including more time to pay through a payment arrangement, or remission of penalties and general interest charges where there are "circumstances beyond the taxpayer's control".
It says that, in certain circumstances, directors may have a valid defence that would remove their director penalty debt.
"These [removal of a DPN] are generally available for people who, for good reason, did not ever take any part in managing the company," the ATO spokeswoman said.
"Remission of the director penalty debt may also be available if the director takes certain steps within 21 days."
'No open channel for communication'
As it stands, Mr Christodoulou says his 16-year-old daughter has got more money in her bank account than he has.
He is currently working as an employee for a private company and says when he gets his personal tax refund the ATO automatically take the money out of that.
"I've also been paying $100 a month towards it as well, just so it doesn't grow any more while we try and sort this out," he says.
"But therein lies the problem. There is no open channel for communication, and there's no way of knowing how to communicate with anybody at the ATO."
He says the stress of the situation has led to him contemplating self-harm.
"I wasn't one of those business owners that Phoenixed my company, I had the business in my own name, I took full responsibility for running my company. I did everything by the book," he says.
"You're allowed to make mistakes, and you're allowed to be held accountable for those mistakes, but not 11 years down the track.
"There should be a process in place to stop the ATO from bullying people, from scaremongering people and from going after them essentially without anything holding them back."