Business Strategies: more difficult than ABC

ABC Learning Centres (ABC Developmental Learning Centres Pty Ltd) is, or perhaps we should say was, a listed provider of nursery services, proving day-care and after-school clubs for Australia's working parents.

Just three years ago, its share price had risen steadily and reached just under AUD8. On suspension, it had fallen to just AUD0.54.

The company had expanded aggressively, with hundreds of centres across the country. But in doing so it had created an enormous demand for capital. It went to market and in addition borrowed heavily. In fact its most recent published accounts show debt of about AUD1.8 milliard - of which some 60% was owed to banks, mainly a consortium of Australia's top four.

But bizarrely, that enormous lending was unsecured. Until June this year when the company agreed to give the consortium a floating charge which was registered at ASIC, the securities regulator.

Other creditors questioned the apparent favour granted to the banks, and a class action to overturn the charge has been begun. Amongst the allegations is that the company did not tell the true picture to its creditors.

The company's auditors, KPMG, have begun a review of the latest accounts with a view to restating them. And they are going back to previous years, too.

Yesterday, administrators were called into the company. The Australian government announced that it would ensure that the centres stay open, so allowing parents to continue to work.

Administrators hope to find a buyer but private equity firms that have looked at the business have all walked away during due diligence, perhaps suggesting that underneath there is something still not fully disclosed.