Case Study of ABC Learning Ltd: Lessons Learned from the Collapse

CASE STUDY OF ABC LEARNING LTD 1
CASE STUDY OF ABC LEARNING LTD
By Student’s Name
Code + Course Name
Professor’s Name
University Name
City, State
Date

CASE STUDY OF ABC LEARNING LTD 2
Introduction
ABC Developmental Learning centers commonly called ABC Learning were found in
the year 1988 in Ashgrove found in the City of Brisbane in Queensland, Australia by Eddy
Groves and his wife, Le Neve (Mitu, 2015). The organization’s humble journey started in
Australia but soon grew to an international company renown for providing education and
development services to children. Its focus was on providing school services such as before
school services, long care services, and after-school services. the organization had a vision of
ensuring that each child was nurtured, loved, and educated thus giving them the best possible
opportunity in life. In realizing this vision, ABC Learning had four building blocks which
included, Centre staff training and development, physical development and nutrition,
environment and facilities and a learning curriculum as the last one. The company first grew
in Australia having 43 centers in 2001, then beyond boundaries to USA, UK and even New
Zealand in 2005 (Blythe, 2017).
ABC Learning was listed on the Australian Stock Exchange in the year 2003 and
started expanding exponentially through various acquisitions and mergers. In 2006, it
acquired La Petite, the 5th largest childcare in the UK and second largest in the US (Gale and
Parker, 2017). In 2007, it owned 2238 centers worldwide. In 2008, it was forced to sell the
childcare in the US to Morgan Stanley and the earnings used to clear a debt which had
accumulated.. In October the same year, the company was put into receivership since 40% of
its centers were unprofitable. One month later, the Board of Directors of the organization
handed over to the administrators. In 2009, ABC learning was sold to GoodStart Children and
re-named as ‘Goodstart Early Learning’ (Mitu, 2015). Today it is a registered charity owned
by the Benevolent Society, Social Ventures and Mission Australia, and Brotherhood of St.
Laurence in Australia.

CASE STUDY OF ABC LEARNING LTD 3
There are various faults in the organization which led to its fall. These faults mostly
surround accounting issues and the first fault was lack of transparency and manipulated
accounts. The accounting books were not well updated and maintained and due to the
continued manipulation, the administrators could not trace the accounts information well
(Kuhlthau, Maniotes and Caspari, 2015). Besides, their organization was poorly managed by
the board and the management which resulted in poor decision making. Most of the
management members were politicians who had less knowledge and skills to deal with
childcare knowledge. Furthermore, on the same point, the management was involved so
much in expansion beyond boundaries but not dealing with the roots of the actual problems.
Moreover, opaque operations was another fault whereby the business operations were not
clearly outlined. This included the costs of associating with each Centre as well as the
performance costs of them.
In addition, related party transactions was another cause of the collapse. This is shown
out clearly in the appointment of new auditors where the CEO appointed a company
belonging to his former brother in law Frank Zullo. The company was called Queensland
Maintenance Services (QMS) appointed for maintenance works at the Centre (Mitu, 2015). In
addition, there was poor strategic planning and inorganic expansion. This was due to poor
risk analysis before the rapid international expansions were done hence making the
organization a highly levered company. At a point, the loans exceeded the capacity of the
company to pay. These loans were mostly used for expansion since they crossed international
boundaries through acquisitions and mergers.
The collapse started in 2003 when Pitch Partners, who were ABC's external auditors
gave ABC unqualified opinions but resigned later in 2007 were new auditors, Ernst and
Young came in with a different view of the previously stated profits (Alsharari, 2016). To
settle the different opinions provided, ABC brought in KPMG as a third party but the fault