Case Study: ABC Learning
Background
ABC Developmental Learning Centres was founded in 1988. ABC rapidly expanded, reaching 43 childcare centres by June 30, 2001. By November 2005, it had 697 Early Childhood Education centres throughout Australia and New Zealand. In March 2006, it forecast that would have 950 centres in Australia and New Zealand by June 30, 2006.
It was a highly profitable company in the 2004/5 financial year, recording net profit after tax of $52.3 million from total revenues of $292.7 million. The six months ending 31 December 2005 showed no slowing in the financial momentum for the company with profit after tax reaching $38 million and revenues of $219.8 million.
Trading in ABC Learning shares was suspended in August 2008 after the company failed to release its earnings for the 2007-08 financial year.
Despite selling off assets, the company fell into receivership in November 2008 after increasing debt servicing obligations and its auditors were unable to sign off on its accounts. The federal government injected $22 million into the company to keep its childcare centers open until the end of 2008.
The company was subsequently delisted.
Creditors voted to wind up the company in June 2010.
‘Lessons to be learnt from ABC Learning's collapse’
Colin Kruger
January 2, 2009
Dr Philip Ross, the head of the school of accounting at the University of Western Sydney, describes it as a "failure of regulatory and accounting processes" and says that despite changes to Corporations Law and accounting standards, ABC Learning's situation is not that different to the One.Tel and HIH collapses.
"All three sought rapid expansion of market share which carried significant risks clearly not reflected in [their] financial statements," he says.
He notes that ABC Learning's profits increased rapidly through acquisitions, which should have raised questions