ABC Learning was a child care services company that was listed on the ASX until it announced on 6 November 2008 that voluntary administrators had been appointed. On 2 June 2010, creditors of ABC Learning voted to place the company into liquidation.
The application that was filed on 17 December 2010 sought leave from the the Federal Court to commence a class action. The application for leave needed to be made because the Corporations Act 2001 (Cth) prevents a civil proceeding being commenced against a company that is in liquidation unless the court gives leave.
On 22 July 2011, the Federal Court gave leave allowing the commencement of a class action seeking compensation for shareholders as a result of non-disclosures and misleading or deceptive conduct by ABC Learning.
The class action has not yet been commenced because ABC Learning remains in liquidation and the potential recovery for shareholders therefore remains uncertain.
However, on 24 October 2012 the liquidators of ABC Learning commenced proceedings in the Federal Court against CBA Corporate Services, other banks and partners of McGrath Nicol (in their capacity as receivers and managers of ABC Learning) to recover amounts received by those parties under company charges granted by ABC Learning. If these claims are successful, the money that is recovered may in due course be distributed to ABC Learning's unsecured creditors (which includes shareholder creditors). It may be some time before the amount (if any) recovered by ABC Learning's liquidators is known.
The commercial viability of commencing the class action or seeking other remedies for shareholders will continue to be revaluated from time to time in light of developments in the proceedings commenced by ABC Learning's liquidators.
Events leading to a class action
During 2006 and 2007, ABC Learning made a series of positive earnings and profit announcements during a period of significant expansion of its business in Australia, New Zealand, the US and the UK. In its financial statements for the 2007 financial year that were published in late August 2007, ABC Learning heralded total revenue of more than $1.69 billion and net profit after tax of $143.1 million. At that time, ABC Learning shares were trading around $7.07 per share and the company made a series of positive earnings forecasts.
However, after the close of trading on 25 February 2008, ABC Learning published its interim results for the 2008 financial year and disclosed for the first time that some of its revenue was in fact derived from payments by developers of its childcare centres to support centres during periods of occupancy growth and liquidated damages received from child care developers. These non-operating sources of revenue were as much as $99.5 million in the first half of the 2008 financial year, in which ABC Learning announced net profit after tax of merely $37 million. The ABC Learning share price plunged more than 40 per cent after the announcement of the 2008 interim financial results.
Then, on 31 July 2008, ABC Learning announced a further downward adjustment to its guidance for the 2008 financial year. In the published ASX announcement it was revealed that the earnings results for the 2006 and 2007 financial years would need to be restated. It was revealed for the first time that ABC Learning's revenue in 2006 had been overstated by $30 million, and in 2007 revenue had been overstated by $14 million. The reason for the overstatement was that ABC Learning had received payments from an employment services company, 123 Careers Pty Ltd, which should have been amortised over a ten year period rather than being recorded as revenue only in 2006 and 2007. By 31 July 2008, ABC Learning shares were trading at around $0.73 per share.
Ultimately ABC Learning never published its 2008 financial results and, as was noted above, on 6 November 2008 voluntary administrators were appointed and on 2 June 2010 the company's creditors resolved to wind up ABC Learning.
If the class action is commenced, it will be alleged that ABC Learning contravened its continuous disclosure obligation under the Corporations Act and that it engaged in misleading or deceptive conduct as a result of its failure to provide timely disclosure of:
1. the payments received from developers and the fact that a material component of ABC Learning's revenue was comprised of these payments, and
2. the fact that a material component of its revenue in 2006 and 2007 was derived from payments from 123 Careers.
The claim group and claim period
The proposed claim period is from 28 August 2006 to 31 July 2008 and if the class action is commenced, it is proposed to be conducted on behalf of ABC Learning shareholders who:
- bought ABC Learning shares during the claim period
- suffered damage resulting from the conduct of ABC Learning, and
- have entered into a funding agreement with Bentham IMF (Australia) Ltd.
Bentham IMF (Australia) Ltd is not currently accepting new entrants to the ABC Learning class action. Should existing clients have any queries they may contact Bentham IMF (Australia) Ltd at www.imf.com.au or 1800 016 464.