Collapse of ABC Learning Centres and the impact on the not-for-profit sector

The collapse of a multi-million dollar commercial entity, the appointment of a Court Appointed Receiver, contracts for sale and due diligence are not the usual legal topics dealt with by PilchConnect - PILCH’s specialist legal service for not-for-profit community organisations. However, the collapse of ABC Learning Centres Limited (ABC) and the legal implications of the subsequent sell-off of a group of ‘unviable’ centres (ABC2 Group Pty Ltd or ABC2) was the subject of a recent, well-attended PilchConnect seminar. Why was this matter in the public interest?  

In January 2009 PilchConnect was approached by Community Child Care Association (CCC), the peak body for not-for-profit (NFP) community owned children’s services in Victoria. CCC represented over 40 of its members and other parties registering their interest in possibly acquiring one of the 241 ABC2 centres being offered for sale. CCC sought the assistance of PilchConnect to ensure that all potential NFP child care purchasers were aware of the possible legal issues that might arise in purchasing one of the centres. The matter was urgent due to the tight timeframe for sell-off set by the Court Appointed Receiver.

PilchConnect determined the matter met its public interest criterion. The collapse of ABC left the parents and 20,000 children vulnerable, with no assurance of access to childcare, and many of the ABC2 centres were located in regional and rural areas, with few alternate childcare options. PilchConnect considered there to be a public interest to gain greater diversity of ownership in the childcare sector, as well as in ensuring that existing NFP child care centres made well-informed decisions about acquiring new assets or a new entity. The issue was also one that affected the entire NFP childcare sector.

PILCH secondee, Isabella Calabro (Landers) had carriage of this matter and, taking into account the urgency and the need to use pro bono resources strategically, speedily organised a 4 hour seminar. The aim of the seminar was to provide interested NFP childcare operators with a very practical overview of the legal issues to consider before making a decision to bid for an ABC2 centre.  

DLA Phillips Fox generously accepted this pro bono referral and Robert Allen, Partner, from DLA’s Corporate and Commercial Group co-ordinated the seminar and provided attendees with a thorough overview of the relevant legal issues. He was ably assisted by Jane Baddeley, Partner (property law) and Rick Catanzariti, Partner (employment law).

The seminar also involved a number of co-presenters to address specific issues, including:

  • Ted Woodward, Barrister, List A Barristers on insolvency and the collapse of ABC;
  • Robyn Erskine, Chartered Accountant and Insolvency Accountant, Brooke Bird providing expert insight into the impact that purchasing centres might have on the solvency of existing NFP childcare providers; and
  • Robert Wright Lawyer, R.P.D. Wright who has over 25 years experience advising NFPs, particularly those operating in the child care and education sectors.

The seminar addressed issues such as:

  • What happened to ABC Learning Centres, and what is happening now?
  • What is being sold, and what are the legal implications of buying the assets of an insolvent business?
  • What is ‘due diligence’ and how should we go about it?
  • What other legal issues should we think about? (eg. assignment of leases, employee matters, security and/or guarantee arrangements).
  • What about finance? What are the issues associated with funding the acquisition of a child care centre?
  • What legal issues may arise specifically in a child care setting?

Feedback from attendees - over 40 NFP childcare groups -  was that the seminar provided them with very clear, logical and practical information about the possible issues and risks that might arise if acquiring an ABC2 centre.

Another 720 profitable ABC Learning Centres are in the hands of receivers. A sales process for these centres is expected to get underway in the second half of this year. PilchConnect will continue to collaborate with Community Child Care and other organisations to maintain and advance public interest in the not for profit sector.