Chapter 1

ABC Learning: Collapse of an

entrepreneurial venture
QUAMRUL ALAM AND MOHAMMAD ABU YUSUF

Company overview
ABC Learning grew to be Australia's largest childcare operator. Founded by
Eddy Groves and his wife, Le Neve, in Brisbane in 1988 (Durie 2008), it
managed — at its peak - approximately 1,040 of the estimated 4,700 childcare
centres in Australia and provided care services to more than 110,000 children
(Fraser 2008). Although it started its journey in Australia in 1988, ABC
Learning established itself as an international organisation that was engaged in
providing educational and development care for children around the world.
Then, in October 2008, ABC Learning was put into receivership, as 40% of its
centres were unprofitable (Ahmed 2008). To a backdrop of severe debt and
financial crisis, ABC Learning went into voluntary administration as, on 6
November 2008, the company's Board of Directors handed ABC Learning over
to administrators. The appointed administrators were continuing to look for
buyers for a number of ABC Learning centres at the end of December 2008.
All of ABC Learning's centres, however, remained open until the end of
December 2008 with the help of funds from the Federal Government. On 11
December 2008, the Federal Government announced that 55 centres would be
closed at the end of December 2008, and another 241 were declared as

1
'unviable'. $34 million was then allocated to keeping these 'unviable' centres
open until 31 March 2008 (ABC News, 11 December 2008; Ahmed 2008).
ABC Learning received approximately 44% of its revenue from the Australian
Federal Government as subsidies for the children attending its centres.

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 Chapter 1 — ABC Learning: Collapse an entrepreneurial venture

ABC Learning provided long day care services to between 20 and 25% of the
Australian market (Australian Financial Review, 5 November 2008). Many of its
centres also provided before school care, after school care and vacation care. The
dream of ABC Learning was 'to improve human life by providing the best care in
the world'. ABC Learning s vision was to ensure that each child was loved,
nurtured and educated, and thus given the best possible chance in life. To realise
this dream, ABC Learning created four building blocks to ensure the overall
wellbeing and future development of the children attending its centres. These
building blocks were: (1) a learning curriculum; (2) nutrition & physical
development; (3) centre staff training & development; and (4) facilities and
environment.
ABC Learning's tailored learning curriculum focused on each child's unique style
of learning; its aim was to allow each child to gain the maximum while attending
an ABC Learning centre. ABC Learning also developed a strong brand presence
through a consistent look and feel to its centres, standardised training of its carers,
and an authorised learning curriculum for the children.
In 2003, with only 43 centres, ABC Learning listed on the Australian stock
exchange. Since listing, ABC Learning grew larger through strategic acquisitions
in Australia, the US and the UK. After the acquisition of La Petite in the US, ABC
Learning owned over 1,015 centres in the US, making its US operations over 15
times larger than its Australian arm (ABC Learning Annual Report 2007).
ABC Learning's CEO, Eddy Groves, was forced to sell ABC Learning's US
business in April 2008 to pay down debt.

Reasons for ABC Learning's growth

Steady economic growth in Australia, the US and other developed countries
and the resultant employment opportunities - e.g. 30-year record low
unemployment levels — created optimal conditions for childcare services.
The increased participation of women in the paid workforce also created a
surge in demand for childcare services.
The 'baby bonus' from the Australian Federal Government — a lump sum payment
of $5,000 per child to help with the costs associated with a new baby — also had a
huge impact on the market.l And, due to demographic changes, grandparents who
had traditionally helped care for grandchildren were less able to do so. At the same
time, government regulations and standards for childcare centres were so onerous
that local volunteer and community organisations could not compete with larger
private sector childcare providers (Australian Financial Review, 11 November
2008). These factors all contributed to the increased demand for quality childcare
services. ABC Learning used these opportunities to its

1 Childcare subsidies in Australia started in 1991 under the Hawke government. The
Howard government, in 2000, not only increased the subsidies but paid them directly to the
childcare providers rather than to parents (The Australian, November 8-9 2008).
Cases in Business and Management
of

advantage. Moreover, ABC Learning had easy access to leading organisations for
the necessary funds.

The collapse of ABC Learning

ABC Learning was a high growth company. The company collapsed late in 2008
after months of financial trouble. It owed $1.66 billion to its creditors, including
banks, staff and others institutional lenders. ABC Learning's demise began in
February 2008 when the credit crisis hit many organisations. A number of
directors had to sell shares - largely due to margin calls - after the share value
experienced a free fall — ABC Learning shares hit a record high at $8.80 in
December 2006, $8.00 in 2007, and last traded at 54 cent in August 2008 - after
the release of poorer than expected first-half financial results. The reported 42%
fall in first-half earnings caused shares in the company to plunge to 54 cents (on
21 August 2008) amid concerns both over ABC Learning's rocketing debt levels
from the company's rapid expansion overseas (Murdoch 2008). Investors became
concerned about its levels of debt arising from acquisitions in the US and the
UK. Concern mounted over ABC Learning's ability to recover from its financial
difficulties. ABC Learning also came under heavy criticism from analysts for its
lack of transparency.
Figure 1.1 ABC Learning Centres Ltd price history chart
S Lin Chart
D - Daily Line Chart [Closel
- A S Simple MA [20 0, Closel
3.250
5600 3.000

— 2.750
5200 -
—Z 2.500
2.250
4800
2.000
- 1.750
4400
1.50D

e
1.250 4000 -
- 1.000
--- 0.750
3600

A S -Volume

40000
000

Source: Australian Stock Exchange website, accessed 20 November 2008.

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 Chapter 1 — ABC Learning: Collapse an entrepreneurial venture
On 31 July 2008, ABC Learning announced a pre-tax loss of $437 million,
including write-downs totalling $213 million for 2008. It also flagged negative

adjustment of $19 million to 2007 pre-tax earnings as well as a one-off pre-tax

charge of $34 million to prior year earnings before 2007.
The revised ABC Learning accounts, released in September 2008, showed losses
and write-offs totalling more than $600 million. With these huge losses and in
light of new information, auditors Ernst & Young discovered some related-party
transactions1 by ABC Learning's founder, Eddy Groves. Failing to pay creditors,
ABC Learning went into voluntary administration and receivership on 6
November 2008. It is alleged that the accounts of the company were manipulated
and that financial statements needed to be reinstated. ABC Learning missed a third
deadline in November 2008 to submit its 2007-08 accounts. The administrator is
now working to determine to what extent the financial statements of the company
from the previous years would have to be reinstated to reflect the true position of
the company (Durie 2008). ABC Learning's new auditors, Ernst and Young, have
decided to restate the way certain items - and especially revenue streams — were
treated in the accounts. The CEO of ABC Learning, however, has termed the issue
of restatement of its accounts as a simple matter of an accounting 'difference of
opinion' between Ernst & Young and its previous auditors Pitcher Partners. He
maintains that it does not amount to the correction of a systemic problem in ABC
Learning's accounting practices (Ahmed 2008). To detect the nature and extent of
manipulation in ABC Learning's accounts, forensic accountants have been sent to
the childcare operator and are crawling over its books on behalf of banks,
creditors, shareholders and the Federal Government (Bita & Sainsbury 2008).
What exactly went wrong with the company is yet to be certainly determined. The
bank-appointed receivers are also not yet sure what happened with the company,
and they want to dig more into the issue.

Opaque operations
There exists a common belief among policy analysts that the operations of ABC
Learning's business were opaque. The business model of ABC Learning's
childcare centres was not well devised, the economics of the individual sites were
not fully costed, and no proper analysis had been done for site selection. One
leading private equity player complained that it was difficult to unearth basic
details about the operations of the company, including the true cost of individual
childcare centres, the performance of the centres, and how long it took for centres
to become commercially viable.

1 Related-party transactions included the use of a company run by the former brother-in-law
of Mr Grove for the maintenance and refurbishment of its childcare centres. The disclosure
shows that a major part of the group's net profit was generated through a system called
'liquidated damages' and compensation from developers of new centres (Ahmed & Tingle
2008).
Cases in Business and Management

Inorganic expansion
ABC Learning's expansion was inorganic and based on borrowing, i.e. it grew
through mergers and acquisitions. Unlike organic growth, inorganic growth is not
achieved through building in-house competencies or differentiating service
features. Rather, it is achieved, through mergers and acquisitions, by leveraging
the market, the products and the revenues of other companies. ABC Learning had
relied mostly on easy credit money to grow its business overseas, and it overpaid
for some of its acquisitions. Huge loans made the company risky as its leverage
went far beyond its capacity to repay.
ABC Learning was seeking growth in earnings at the expense of profitability,
and was achieving this by raising large amounts of equity from shareholders. In a
real sense, ABC Learning's owners were being 'tapped on the shoulder' to fund
the growth in earnings (Montgomery 2008).

Poor risk management

It seems that ABC Learning had not undertaken proper risk analysis before
rapidly expanding its business overseas. ABC Learning aggressively borrowed to
support its expansion plan. The decision to buy 1,000 childcare centres in the US
with easy loans increased the level of debt from $118 million to $1.7 billion over
an 18 month period. This decision proved to be the undoing of ABC Learning, as
the huge debt put the company at risk in the coming credit crunch (Switzer
2008). ABC Learning thus became a highly levered company, which made it
very vulnerable. Ultimately, ABC Learning was unable to repay the money it had
borrowed.
The inability to pay creditors aggravated the situation and forced ABC Learning's
Board of Directors to look for voluntary administration. Lenders lost their
patience and appointed receivers, even while ABC Learning was trying to
renegotiate its loan agreements with its eight lenders (i.e. the Commonwealth
Bank of Australia, Westpac Banking Corp, ANZ Banking Group, National
Australia Bank, Bank of America, Mizuho Bank, Bank West, and Citigroup) for
its approximately $1 billion debt. The inability to pay borrowers resulted in a big
dent in ABC Learning's share price, which prompted shareholders to sell off their
shares due in part to margin calls, thereby causing even more damage to the
company's share price. The credit crisis dramatically changed ABC Learning's
survival hopes. The sharp fall in the Australian dollar later only added to ABC
Learning s problems (AFR, 5 November 2008).
ABC Learning has also experienced problems with staffing at a number of
centres, and is in a legal dispute with its relief staff provider, childcare
recruitment agency 123 Careers. The childcare provider owes 123 Careers about
$9 million in outstanding bills to June 2008 (Scott & Ahmed 2008). It also owes
$31 million to 16,000 childcare staff in the form of holiday and long service
leave — excluding any redundancy payments should they arise (Bita 2008).

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 Chapter 1 — ABC Learning: Collapse of an entrepreneurial venture

Poor managerial skills

ABC Learning was hamstrung by poor management and by a weak and
nonindependent board (Sainsbury 2008). ABC Learning's Australian
operations did not get adequate attention from its CEO, who was preoccupied
with overseas operations. Regarding the failure of ABC Learning, its founder
and CEO admitted that he had been too preoccupied with expanding its
operations in the US market. In his view, the failure of the company to
increase its fees to appropriate levels in June 2007 was a fundamental mistake.
In the childcare industry, management needs to have hands-on knowledge, as
there was no well-developed service quality benchmark in the industry. It
seems, however, that the CEO of ABC Learning practiced nepotism that
benefited his relative at the expense of ABC Learning. It is alleged that a
maintenance and refurbishment work worth an estimated $170 million was
awarded to Queensland Maintenance Services. This company is owned by
Groves' former brother-in-law, Frank Zulo. Groves, by way of explanation,
tried to convince others that the deal represented the best quote for the required
renovation work (Australian Financial Review, 7 November 2008).
ABC Learning's management also resorted to unscrupulous business practices.
In 1998, a decision was taken to install regional management companies
(RMCs) to act as ABC Learning franchises. At one point there were 800
RMCs in place. It has been revealed, however, that ABC Learning staff ran the
RMCs. Thus, ABC Learning controlled the RMCs while simultaneously using
them to avoid payroll tax. Furthermore, ABC Learning reported only net
earnings from the RMCs, thereby taking a quarter of ABC Learning's revenue
and costs off the ABC Learning accounts without any scrutiny (Chenoweth
2008). In fact, the accounts of ABC Learning are in such a poor state that the
Federal Government had to send forensic accountants from the insolvency and
corporate recovery practitioners PPB to investigate. It seems that the
'investigators will have to start from scratch in assessing its records' (Karvelas
2008).
Against the backdrop of this opaque environment, instead of developing its
own new centres ABC Learning paid a company named 123 Global to buy the
land, build the centres, and then run them until occupancy rates were at
satisfactory level. At this point, ABC Learning would buy the centres from 123
Global at a high price. This practice of buying new centres, and the subsequent
capitalisation of the high start-up costs, allowed ABC Learning to claw back
liquidated damages2 should occupancy rates fall short. This practice of paying a
high price to buy new centres thus allowed ABC Learning to claw back
damages that it counted as profits (Chenoweth 2008). Thus, a big part of ABC
2 Liquidated damage refers to monetary compensation for a loss, detriment or injury to a
person or a person's rights or property, awarded by a court judgment or by a contract
stipulation regarding breach of contract. Generally, contracts that involve the exchange of
money or the promise of performance have a liquidated damages stipulation. The purpose
of this stipulation is to establish a predetermined sum that must be paid if a party fails to
perform as promised.
Cases in Business and Management

Learning's net profit was generated through an unusual system of 'liquidated

damages' and compensation from developers of its new centres.

An inefficient board
The lack of accounting and management skills of ABC Learning Board
members exacerbated ABC Learning's problems. The composition of the Board
was not made of people with accounting, legal and management expertise.
Rather, the Board was manned by politicians who had no expertise in the
industry. Board members did not have the ability to understand the irregular
accounting practices. Chessell and Ahmed (2008) note: 'Rapidly growing
companies such as ABC Learning need directors whose core competencies are
reading accounts, vetting deals and reining in entrepreneurial CEOs. Clearly this
was not the case with ABC Learning.' Poor management systems, questionable
accounting practices, a decline in occupancy, and the improper location of ABC
Learning childcare centres had not been addressed in a timely manner by the
Board.
In describing the poor board quality of ABC Learning, Cornell (2008)
commented: 'It's a history of hopeless governance, of a Board - the previous
Board - that appears to have had little comprehension of or willingness to probe
the opacity of the company's operations. Under former Chair Sallyanne
Atkinson, ABC Learning's Board failed to identify not just operational failures
but disturbing conflicts - or even address the fatal leverage that founders Eddy
and Le Neve Groves had in the company through margin loans3 '
Ryan, who headed ABC Learning's audit committee for five years was not
aware of the extent of related-party transactions that Groves had with his former
brother-in-law Frank Zulo and childcare developer 123 Global director Don
Jones. Some of the related transactions were conducted with the ulterior motive
of showing increased revenue and earnings to mask its true position (Chessell &
Ahmed 2008). Although related-party transactions are not prohibited by law,
adequate disclosures of such transactions are required to be made in a statutory
audit report. It is currently still unclear if such disclosure had been made by
ABC Learning.
Bill Bessemer, the chairman of Austock, was on the ABC Learning Board for
more than a decade. Austock was the broker that helped float ABC Learning in
2001. A corporate relationship was thus established between Austock and ABC
3 Margin lending is a loan that uses shares as security. The borrower (client) puts up some
of his/her own money, the bank provides some more, and the client goes off and buys some
shares. Margin lending allows an investor to pay for only part of shares in a company, but is
liable to put up further cash, or sell the shares, if they fall to a certain level - called a margin
call. Mr Groves, Le Neve Groves and two other directors of ABC Learning were forced to sell
off around $52 million in stock in February 2008 month as result of margin calls. But a
second round of margin calls on 06 March 2008 (as ABC shares plunged again) left Groves
with only a handful of ordinary shares, while his wife Le Neve has none. The 06 March 2008
margin calls also forced Mr Kemp to sell off another 2.7 million shares, leaving him with
23,659 ordinary shares (The Sydney Morning Herald, 12 March 2008).

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 Chapter 1 — ABC Learning: Collapse of an entrepreneurial venture

Learning. ABC Learning's CEO, Eddy Groves, owned a good chunk of Austock
shares, and there was too much scope for conflicts of interest. Having one's
house broker on the Board of his enterprise is not a good corporate practice
(Australian Financial Review, 7 November 2008, p. 57).
ABC Learning management adopted obscure accounting techniques in
preparation of its financial statements, helping it to prepare concocted
statements and thus concealing its true financial position. Board members have
an ethical responsibility to exercise due care to act responsibly when signing off
on new debt deals. It seems that the Board members of ABC Learning failed to
act responsibly and lacked the skills to read the accounts and realise their true
meaning.

Weak public policy

A weak regulatory regime and market-led public policy allowed ABC Learning
to be unconstrained when undertaking heavy borrowing. The privatisation of
childcare industry allowed ABC Learning to manufacture opaque financial
statements to set up childcare centres and to grab government subsidies without
even a feasibility study. The only criterion for getting government subsidies was
to enrol a child in a centre. Although childcare centres are required to get
licenses from the states and territories, the industry has remained mostly
unregulated — except for a single regulation. The only regulation existing for
childcare centres was to have a set number of carers per child (Fraser 2008).
There is no national standard for childcare centres. ABC Learning, with its 25%
market share, simply took advantage of the existing poor regulatory regime
(ABC News, 11 December 2008).
ABC Learning grew big in a short period of time. The company had access to
large subsidies provided by the Federal Government to the childcare sector.
Approximately 44% of ABC Learning's revenue came from tax payers' money,
and there were no controls on where centres are built.
The childcare sector in Australia is heavily subsidised by the government. The
Australian Government pays $2.5 billion in subsidies to the childcare sector
annually. The current subsidies cover 50% of parents' out-of-pocket costs and
amount to $7500 per child, but the Government failed to install a tight
monitoring system to ensure that childcare centres were properly run and that
taxpayers' money was well spent (ABC Television Lateline, 6 December 2008).
The crisis at ABC Learning suggests that the sector is poorly regulated and
poorly managed. ABC Learning did not have sufficient capital, and possibly
40% of its centres were losing money. Despite its poor performance, ABC
Learning acquired centres due to easy access to credit from banks and other
lending institutions. Given the fact that many childcares centres are profitable
with a 100% occupancy rate and with long waiting lists, it seems suspect that
more than 400 ABC Learning centres were unprofitable. It suggests that ABC
Learning's management
Cases in Business and Management
did not undertake proper market study before selecting locations in which to
establish new centres.

The crisis ahead

The childcare industry is not as profitable as people think. Barbara Romeril,
National Secretary, Community Children's Services, states that the childcare
industry does not generate high profits unless one can charge very high fees. 'It's
quite an expensive business to run and its occupancy has to be good. Otherwise it
will not function', says Amanda Morphett, National President, Childcare
Associations Australia. There remains limited scope for childcare operators to cut
costs while covering increasing expenses (Inside Business, ABC Television, 23
November 2008). Staffing claims most of any centre's budget, but because of
regulations regarding child-to-adult ratios, any potential reductions in staffing costs
are limited. In the typical community service, 85% of expenditures are staff
salaries. Moreover, there are expenses for food, equipment, toys, administration and
maintaining grounds. In a commercial service, there is the additional required
expenditure to purchase or lease premises (Romelli 2008).
The spectacular collapse of ABC Learning raises many more urgent questions other
than the obvious one about whether privatisation is the best way forward when it
comes to preschool care (Kirby 2008). The collapse of ABC Learning forced the
Rudd government to come up with a rescue package with a view to providing
working parents with continued access to childcare. It also has raised eyebrows
among competition lawyers as the current Federal Government has realised that the
ABC Learning debacle could have been minimised if there had been restrictions on
market concentration (Midalia 2008). ABC Learning s 25% market share is huge
given the nature of the industry, which normally consists of a large number of small
players. Of the remaining 75% of the market in Australia, 90% operate only one
childcare centre. Furthermore, the industry is much more fragmented in the USA
and Canada. In Canada, the biggest operator has only 2% of the industry, while in
the US — before ABC Learning's arrival — the biggest operator Knowledge
Learning Corporation had only 2.2% of the market. Even after ABC Learning's
acquisition of Knowledge Learning, corporate childcare operators in the US
controlled less than 10% of the total industry (Fraser 2008).
Childcare is a social service and it had always resembled a cottage industry (Bita
2008). However, the corporatisation of childcare is not a problem in principle. There
remains no harm if a childcare provider grows bigger. However, if one considers the
social context of Australia where so many parents are dependent on childcare
service, the problem became very acute as the childcare giant collapsed. ABC
Learning should not have been allowed to have had such large share of the market.
Corporate law and competition law reform initiatives are under active consideration
by the Government despite concerns from lawyers. ABC Learning's collapse has
fast-tracked the Government's plans to reform existing corporate law to stop
creeping acquisitions by which large and dominant companies

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 Chapter 1 — ABC Learning: Collapse of an entrepreneurial venture
progressively acquire small companies to become very large, thereby stifling
competition (Karvelas 2008).
ABC Learning has liabilities of $1.66 billion in Australia, of which $955 million was
'secured charge' — i.e. owed to creditors including banks — against ABC
Learning's assets (Kruger 2008; Kruger & Carson 2008). This $955 million could be
targeted if ABC Learning is put into liquidation. The debt amount does not include
liabilities such as the class action being prepared by litigation funder IMF
(Australia) Ltd, or redundancy payments to ABC Learning staff if its centres are
closed (Kruger & Carson 2008). Unsecured creditors have claims of $600 million in
convertible notes and of $80 million in other debts. In total, 2,243 creditors are
chasing $1.66 billion from ABC Learning. ABC Learning's key shareholder, Morgan
Stanley, lodged legal action against it for alleged misleading and deceptive
conduct. Morgan Stanley bought 60% of ABC Learning's US division — at a cost of
$780 million - which owns 12.9% of ABC Learning. ABC Learning also faces a
shareholder class action for damages worth more than $100 million (Carson 2008)
arising out of its alleged misleading and deceptive conduct and the failure of its
continuous disclosure obligations 4. These shareholders own 20% of ABC Learning's
shares, which fell from a high of $8.80 to 54 cents before the suspension of
trading in its shares (Bita 2008).
ABC Learning's collapse is also turning out to be a damaging incident for the big
four Australian banks. Collectively, these four banks have almost a $1 billion
exposure.
Table 1.1 Estimated bank exposure to ABC Learning's collapse ($m)
ANZ CBA Westpac
ABC Learning 182 200 200 300
ABC Learning Notes 400
Source: Australian Financial Review, 7 November 2008, p. 67.

Separately, the Commonwealth Bank of Australia (CBA) stands to lose a relatively

huge amount of money. The bank has revealed exposures of around $200 million
in loans to ABC Learning. It also holds $400 million in ABC Learning Notes 5. So the
total damage at the bank could come to more than half-a-billion dollars. In
November 2008, CBA suffered a $100 million hit to its 2009 cash profit due to it
writing down part of its ABC Learning Notes exposure. ANZ also had outstanding
loans with ABC Learning. ANZ Banking Group had been treating its $182 million
exposure to ABC Learning as a non-performing loan (Swift 2008). These banks,
which are owed approximately $1 billion by ABC Learning, may also have to return
about $260 million that ABC Learning already repaid, on claims by the
administrator to be classed as a 'preferential payment'. These banks are also
suffering from higher funding costs, from a recession in credit growth, and from
4 The ASX listing rules could require a company to 'disclose the key terms of the margin loan
arrangements, including the number of securities involved, the trigger points, the right of the
lender to sell unilaterally and any other material details.'
5 CBA underwrote the $650 million convertible notes issue in June 2007 via its CommSec broking
arm. Because of low demand, it has been left holding up to 80% of the notes.
Cases in Business and Management
volatile markets. It is still not clear whether ABC Learning's assets — including the
licenses to run 1,040 childcare centres — are valuable enough to repay the
company's liabilities.
Property trusts that own the freehold for childcare centres leased to ABC Learning
are also caught up in the sudden collapse of ABC Learning. Among the property
trusts, Australian Education Trust (AET) is worst affected. AET's current credit
exposure to ABC Learning is approximately $2.02 million that relates to $1.8 million
in unpaid monies relating to development sites in Asia and NZ$0.25 million in
unpaid monies relating to development sites in New Zealand (ASX Announcement,
21 November 2008). Approximately 95% of its 437 childcare centre across Australia
and New Zealand were leased to ABC Learning. The collapse of ABC Learning
resulted in a drastic dent in AET's market value, which crashed from $467 million in
assets to only $35 million. Other trusts, such as the Australian Social Infrastructure
Fund and the Orchard Childcare Property Fund, will also be affected. These smaller
trusts have also leased their childcare centres to ABC Learning, i.e. 56 centres
owned by Australian Social Infrastructure and more than 200 centres owned by
Orchard Childcare Property Fund (Wilmot 2008).
ABC Learning's staff are also unsure about the security of their jobs. They will lose
their jobs in the event that ABC Learning centres are closed. They may even be
deprived of their full entitlements. Already the leave entitlements of 16,000 staff
have been frozen, and the jobs of 16,000 permanent and 8,000 casual workers are
also in doubt. Staff anxious about their outstanding entitlements employer
superannuation contributions, wages, holiday pay and long service leave - will soon
join the queue of creditors to realise their holiday and long service leave
entitlements (Bita 2008; Bita & Sainsbury 2008).
There could also be a devastating impact on working parents if a large number of
ABC Learning centres are closed. This could also force a number of parents to stop
work if they are unable to secure childcare places for their children after December
2008.
It is apparent that a large number of ABC Learning centers could be closed after 31
March 2008. Unless other private and community childcare operators and
nonprofit organisations come forward to run ABC Learning's closed centres, it
could turn into a social disaster affecting large numbers of people including
working families, children, shareholders6 and ABC Learning childcare workers.
Similarly, the closure of 55 centres by 31 December 2008 brought uncertainty and
dislocation for the families and children at the affected centres as well as for the
childcare workers employed at those centres.

6 Its 34,000 shareholders will not receive anything, as only secured creditors will likely get
back some of their funds.

12
Cases in Business and Management

Federal and state governments need to come up with an integrated plan for the
continued operation of the troubled ABC Learning centres until they are bought
or taken over by private, not for profit and/or community organisations if the
worst is to be avoided and social costs minimised.

Questions
1. Critically evaluate the main reasons for ABC Learning's collapse.
2. Identify and discuss the main business features of the childcare industry.
3. How do you find the relationships between lending institutions and ABC
Learning?
4. What policy regime do you recommend for a viable childcare industry?

References
ABC Learning Annual Report, 2007.
ABC Learning's collapse could further hurt Budget, 2008, ABC Lateline, ABC
Television, News Reporter - Rafael Epstein, 06 November 2008.
ABC News, 11 December 2008.
Ahmed, N & Tingle, L 2008, ABC Learning on the brink of collapse, The Australian
Financial Review, 05 November.
Ahmed, N 2008, Non-profit operator bids for ABC centres, The Australian
Financial Review, 10 November.
Ahmed, N & Scott, S 2008, ABC Staff to get paid until year's end, The Australian
Financial Review, 11 November.
Ahmed, N & Symonds, A 2008, Crisis talks to save ABC centres, The Australian
Financial Review, 07 November.
Ahmed, N 2008, We were back on track, says founder, The Australian Financial
Review, 07 November.
Annual Report, ABC Learning, 2007.
ASX 2008, ABC Announcement: ABC learning Centres Limited Administration
and receivership: Impact on CFK, 07 November.
ASX Announcement 2008, Market Update- Australian Education Trust, 21
November.
Bita, N 2008, ABC's debt revealed as rival collapses, The Australian, 19 November.
Bita, N 2008, Kids in alphabet soup, The Australian, 21 November.
Bita, N & Sainsbury, M 2008, Families devastated as receivers threaten to close
ABC care centres, The Australian, 07 November.
Carson, V 2008, ABC childcare goes under, The Sydney Morning Herald, 06 November.

13
Cases in Business and Management

Chenoweth, N 2008, More questions than answers in the accounts (Comment),

The Australian Financial Review, 05 November.
Chessell, J & Ahmed, N 2008, The blame game has a long way to run, The
Australian Financial Review, 07 November.

14