ABC Learning traded while insolvent

CHILDCARE giant ABC Learning Centres traded while insolvent for at least five months in 2008, its administrators have determined in preliminary findings.

ABC, which at its peak had almost 2200 centres in four countries, also had a flawed strategy to handle “significant and rapid growth”, the administrators wrote in a creditors report released yesterday.

“There was inadequate focus on the day-to-day practices and results of the business operations”.

The report also confirms that related entities are making claims against ABC include former chief executive officer Eddy Groves who is seeking $3.3 million in a claim for unpaid wages.

The administrator will hold a public examination next month at which time Mr Groves will be asked questions about the affairs of the company and his conduct as director.

The administrator has been running a public examination in Federal Court since December.

Examinations last week revealed that new management believed a scheme using contractor invoices helped overstate profits.

The administrator’s report also indicated there “may be” unreasonable director-related transactions and voidable transactions and highlighted that a director could be ordered to pay damages if insolvent trading occurred.

The administrator preliminary view is “………….that ABC became insolvent during the first half of 2008,”.

ABC, which catered for children aged from infants to school age, suspended trading in its shares in August 2008.

The administrator’s report states its directors advised that it had become apparent ABC could not pay debts when they fell due on November 1 and 2, 2008.

The report of the administrator said that ABC, which listed in 2001 with only 43 centres, pursued a rapid expansion “without a strategy of successful integration of the businesses being developed and acquired”. Occupancy levels were too low and labour costs rose significantly.

Another alleged problem was a “dependence upon compensation payments, liquidated damages and fee guarantees from developers to provide revenue streams”.

“As the operating cash flow of the business was insufficient to fund the ongoing acquisitions and the availability of additional debt and equity became scarce, the business model was unsustainable.”

ABC owed almost $1.6 billion when it collapsed.

Article excerpts news.com.au