Child Care ProvisionIn Australia

The Impact of the Collapse of a Large Provider

Background

Child Care in Australia•Child care provision exist in Australia has a strong emphasis on provision by private-for-profit providers. In 2004-05 of all child care services:

71% for profit were privately managed 26% were community managed or not for profit 3% were Government

•More than half the child care services in Australia are operated by small providers who have between 1 and 3 centres/services.•Government subsidies are largely in the form of fee reimbursements to parents (available to services that meet quality assurance requirements).

Significant Expansion in Child Care Places 1989 2008 % change

Child Care Places

114390 700314 612%

Child Care Centres

2340 11595 496%

Female workforce participation

3.1 million 4.8 million 157%

The Growth of a Major Corporate Provider

•ABC Developmental Learning Centres was founded in 1998 (mainly targeted long day care centres with children aged 0-5)

•ABC expanded over the next three years, reaching 43 child care centres by June 30, 2001.

•By November 2005, it had 697 Early Childhood Education centres throughout Australia and New Zealand. •By July 2007, it ran 1084 centres in Australia; around 25% of all child care services.

The Number of ABC Learning Child Care Centres in Australia

4394

187

327

660

905

10841037

0

200

400

600

800

1,000

1,200

2001 2002 2003 2004 2005 2006 2007 2008

Nu

mb

er o

f ce

ntr

es

Source: ABC Annual Report 2007; ABC Receiver Update 2008

ABC at the Time of the Collapse• 1037 child care centres in Australia

• 25% of Long Day Care market

• Over 100,000 children

• 16,000 staff

• $1.43 Billion debt

• $88.5 Million annually in Government Child Care Benefit

• 1,000 centres also in USA, 100 in UK and 100 in NZ

What was Right with ABC?• Accreditation standards• Staff qualifications• Support for staff • Building standards• Opening hours• Services provided• Value for money• Brand recognition

• Company financial records• Lack of autonomy for centre staff• Insular organisation• Top heavy with administrative staff• Contributed to oversupply of child care places• Complicated and expensive lease/building

arrangements• Debt driven, ruthless acquisition policy• Complex organisation and governance structure

What was Wrong with ABC?

Chronology of Events• March 2008 – Reports Eddy Groves had sold almost all his stake in the

company. ABC’s share price plummets. Company enters voluntary trading halt.

• September 2008 – Company cannot provide end of year results- leads to further drop in share price and trading halt extended.

• 24 September 2008 -Child Care Industry Taskforce (CCIT) established.• 30 September 2008 - Eddy and Le Neve Groves resign all management and

Board positions at ABC Learning• 10 October 2008 - ABC Board acknowledge that their financial circumstances

are far more serious than was previously apparent to them. • 6 November 2008 - ABC Learning enters voluntary administration and a

Receiver is appointed.

Australian Government Response

Why did the Government Need to Respond?

• Possible major social and economic disruption in many Australian communities.

• Employees were likely to have been terminated without their entitlements being paid.

•There was likely to have been extended confusion and chaos while the business issues were resolved.

How Did the Government Respond?

• 7 November 2008 – Government announces $24 million support package to keep centres operating to 31 December 2008

• 10 December 2008 – McGrathNicol announces that 55 centres will close at the end of the year, 720 will continue as ABC with the intention of selling as a single group.

• 10 December 200 –Government announces a further $34 million package to fund the remaining 262 “unviable” centres (ABC 2) pending their sale.

• Remaining 262 “unviable centres” transferred to a new company (ABC2) placed in hands of Court Appointed Receiver.

What did the CAR do?• Undertook process for the sale of the unviable centres• Negotiated the sale, transfer or closure of all the ABC2 centres •Managed the contract with McGrathNicol to continue the day to day operation of the centres.•Assisted families at closing centres to secure suitable alternative care.•Assisted staff at closing centres to secure comparable employment

The Court Appointed Receiver (CAR)

Of the 262 ABC2 centres:• 34 centres were sold to 5 different not-for-profit

operators.• 202 centres were sold to for-profit operators• 26 have been closed

Establishment of Not-For-Profit Syndicate: GoodStart

ABC Receiver, announce process for the sale of remaining 720 ABC centres on 31 August 2009.

GoodStart (made up of four non-profit organisations) is established with philanthropic investment and loans from the Australian Government.

A new level of collaboration and cooperation between the Government, the not-for-profit sector and private investors.

GoodStart: emphasis on quality, aims to create a vibrant, child-focussed early learning organisation.

Final OutcomeOf the ABC centres not transferred to the Court Appointed Receiver:

16 centres were dealt with prior to the sale process, and 706 were offered for sale.

571 centres have been purchased by GoodStart. GoodStart is negotiating to purchase another 107 centres. The Receiver has negotiated the sale of another 24 centres. The Receiver was unable to secure purchasers for 4 centres

which have or will soon close.

Post ABC Collapse•Over 90 per cent (952 out of 1037) of the original ABC Learning Centres operating in Australia at the time of the collapse are still operating today.

•After the GoodStart sale the projected long day structure is:

Privately managed (64%)Community managed or not for profit (34%)Government (3%)

Lessons Learnt

Reducing the risk of a similar corporate collapse•New operators must demonstrate that they are suitable to operate a child care centre.

•Operators must give 42 days notice before they close a child care centre.

•Monitoring of child care centres has been strengthened.

•A new civil penalty regime has been introduced.

In the 2009-10 Budget, the Government, subject to consultation, announced plans to:

•The financial viability of large Long Day Care (LDC) providers will be assessed before they are approved for Child Care Benefit (CCB) and will be reassessed each year.

•The Minister for Education will have new powers to commission an independent, confidential investigation or audit.