Chapter 2
ABC Learning Centres
There are few barriers to entry and expenses are low, so the
childcare industry is a licence to make money. A Gold Coast real estate agent
and 'child-care specialist', Bryan Hayden, says: 'I've got a client and he's
got 20 bottle shops, 10 hotels and three child-care centres. I say to him, 'I'm
77 and the child-care business is the best business I've ever seen in my life.'
The Government pays subsidies, the parents pay you two weeks in advance and
property prices keep going up.[1]
2.1 The collapse of ABC Learning, which was the
catalyst for this inquiry, added significant momentum to the movement to
improve the provision of childcare across the country. That an organisation
catering for up to 25 per cent of the long day care market should fail so
rapidly following its rise to market dominance says as much about the
deficiencies in childcare policy and regulation as it does about the highly
questionable business practices of the company.
2.2 In June of this year, a representative from the
Australian Competition and Consumer Commission (ACCC) informed the Senate
Economics Committee of the ACCC's belief that ABC Learning's failure was not
due to a lack of competition but probably 'prudential reasons' such as high
levels of debt and acquisitions as well as complicated business practices.[2]
2.3 However, any detailed analysis of the financial
collapse of ABC Learning is beyond the scope of this report. It has much more
to do with issues of corporate governance and requires the attention of the
ACCC and the Australian Securities and Investment Commission (ASIC). One
submission to the inquiry drew the attention of the committee to the apparent
failure of ASIC to examine closely claims made by ABC Learning about the
valuation of its operating licences. Although these licences had no trading
value, ABC Learning put high valuations on them and then raised additional
shareholder funds, in large part based upon such valuations.[3]
This matter was also dealt with in an article in the Sydney Morning Herald,
which reported that ASIC was taking 'a close look at the ABC Learning collapse
and is expected to be a little more active this time around'.[4]
2.4 The committee requested from ASIC some details of
its progress in this investigation. ASIC continues to investigate the collapse
of ABC Learning but advised that no further details are yet available.
Regarding the revaluation of licences, ASIC advised that in accordance with its
initial investigation, revaluation of the licences was not 'material to the
company’. ASIC informed the committee that:
[r]evaluation of licenses was permitted under the accounting
standards for the year ended June 2005 and new accounting standards applied
thereafter. The new standard AASB 138 "Intangible Assets"
("AASB 138") only allows the revaluation of intangible assets in
certain circumstances. However, the standards only apply where an accounting
treatment has a material impact...ASIC noted that at the time of its enquiries,
the financial impact of these concerns on the 2006 financial statements was not
material to the company.[5]
2.5 The more important aspect of the collapse of ABC
Learning was to focus attention on the appropriateness of corporate sector
participation in childcare provision. There was a strong view expressed through
many submissions that provision of quality childcare was incompatible with
shareholder aspirations. There is an inherent conflict of interest between the
two. This chapter will consider the lessons to be learnt from market domination
by the corporate sector, and the implications of having a national 'system'
dominated by any future oligopoly of corporate providers.
The advent of 'market forces'
2.6 It was assumed in several submissions that
policies adopted by the Coalition government of 1996-2007 introduced the free
market into childcare provision. Professor Deborah Brennan and Associate
Professor Susan Newberry, however, traced changed attitudes back to the 1980s
when the attraction of a market-orientated funding system became evident to the
Treasury. In 1985, the Commonwealth ended the link between childcare subsidies
and the award wages of qualified staff and cut operational assistance by 50 per
cent.[6]
This was followed by changes to the extended childcare assistance in 1991. Up
to that point, the Commonwealth subsidised non-profit organisations only, as
provided for under the Child Care Act 1972, and these recurrent
subsidies were paid on the basis of the number of properly qualified staff in
each centre as required under state regulations.[7]
2.7 The 1991 legislation extended assistance to users
of private childcare. The reason for this was the need to expand childcare
services to meet increasing demand and to end what came to be seen as
discrimination against the private sector. Brennan points out that this move
was strongly supported by the Federation of Childcare Associations, who argued
that the employment of unionised workers with 'unnecessarily high'
qualifications was a factor in the high cost of childcare.[8]
There have been echoes of this view expressed during this inquiry.
2.8 The effect of this policy change was significant.
Between 1991 and 1996, the number of places in private childcare centres
increased by 233 per cent, while the growth in community-based and
not-for-profit centres increased by 15 per cent. In 1991, the number of places
in community-based centres outnumbered those in privately-owned centres. By
1996, there were over two and a half times as many places in private centres as
in community centres.
2.9 The government abolished operational subsidies for
community-based and not-for-profit childcare centres in the 1996-97 Budget and
stopped funding for construction of new community-based centres that had been
planned. The new tax system in 1999 saw the consolidation of family benefit
payments into the arrangements which continue today, including the payment of
Child Care Benefit (CCB). In regard to the CCB, around 95 per cent of parents
using approved childcare receive this subsidy as a fee reduction at the time
that they pay their fees. Families choosing to receive CCB as a fee reduction,
rather than as an end-of-year lump sum, will only have to pay the service
provider the difference between the full fee and the amount of CCB.[9]
Market or community service?
2.10 Finally, the committee notes that the role of
corporate players in the childcare sector is regarded by many as anomalous.[10]
Proponents of this view argue that childcare is a 'public good' in the same way
that school education is a public good. There are no schools or school systems
listed on the stock exchange.[11]
There are no universities listed on the ASX. The reason is that those schools
and universities are heavily subsidised by government. They function very well
as non-profit institutes, able therefore to pay competitive salaries to
maintain quality of teaching and maintenance costs for buildings and equipment,
usually with government assistance.
2.11 Some committee members would argue that it is not
appropriate for profits to flow from childcare centres into the hands of
shareholders who benefit from the leveraging of taxpayer funds. The committee
appreciates, however, that pragmatic considerations often outweigh objections
in theory. Even if the experience of ABC Learning's operations have been
unfortunate, it is clear that it has not entirely prejudiced public opinion
against a continuation of corporate participation in the sector.
2.12 On the other hand, the market approach resulted in a
substantial increase in the number of childcare places available, meeting the
increasing demand for childcare. In fact, as noted previously, there was more
than a two hundred per cent increase in the number of childcare places offered
by private providers between 1991 and 1996.
Rise and fall of ABC Learning
2.13 ABC Learning Centres Ltd began operating in Brisbane
suburbs in 1988, growing on the back of urbanisation in south-east Queensland.[12]
By 1997, it was the largest single provider in Australia, with 18 centres.[13]
It was the first of several childcare operators to be listed on the Australian
Stock Exchange (ASX) in 2001-02. Others included Future One, Child Care Centres
Australia, Peppercorn Management Group and Kids Kampus. Two of the proprietors
of these companies entered the Business Review Weekly's 'rich list'
within two years of listing. ABC Learning in time acquired each of these other
companies. With ABC Learning in receivership, there are no listed companies at
the time of reporting.
2.14 By 2008, ABC Learning was the largest provider of
childcare, holding around 20 per cent of the long day care market and providing
care to over 100 000 children. ABC Learning employed around 16 000 staff. The
company sold 45 of its childcare centres in July 2007,[14]
which contributed to a reduction in the number of centres in 2008. Researching
the growth of the company between 2001 and 2006, the Australia Institute noted
that ABC Learning achieved close to one hundred per cent growth between
financial years 2004-05 and 2005-06.[15]
The graph below demonstrates the growth in the number of ABC Learning centres
in Australia from 2001 to 2007.
Graph 2.1: Growth in ABC Learning Childcare Centres
in Australia
![Graph of the growth in ABC Learning Childcare Centres in Australia](/~/media/wopapub/senate/committee/eet_ctte/completed_inquiries/2008_10/child_care/report/c02_1_gif.ashx)
2.15 The financial press became an important source of
information about childcare matters by 2001. Business Review Weekly
reported that ABC Learning shares, worth two dollars after listing on the ASX,
had risen in value to $13.94 by 4 October.[16]
ABC lifted its net profit 115.6 per cent to $9.6 million in 2001-02 on revenue
that rose 81 per cent to $23.8 million.
Eddie Groves of ABC describes the child-care business as
recession-proof, thanks to the guaranteed revenue stream from federal
government subsidies. Under the child-care benefit scheme, fee subsidies, which
are subject to a parental income test, are usually paid direct to the centre.[17]
2.16 The biggest leap in revenue occurred in the
financial year 2004-05 when they rose 257 per cent on the previous year. This
significant growth, in large part, was due to the acquisition of Peppercorn
Management Group which led to the number of centres under ABC Learning control
doubling from 327 to 660 in the financial year ending 2005.[18]
2.17 One effect of corporate interest in the childcare
sector was seen in the property and building market. The new corporate-run
centres needed prime location sites in central business districts and in
affluent suburban areas with favourable demographic characteristics, or at
least sites in fast-growing urban areas. For some corporate players, real
estate acquisition and income from rents from childcare centres was the raison
d'etre for their investment in childcare. There were complicated business
arrangements between mutually dependent entities like ABC Learning and
Australian Education Trust. Market rentals were determined by childcare places.[19]
Brisbane merchant bank, DDH Graham ran three property trusts and owned 35
centres which were operated by Peppercorn.[20]
Small-business operators who had once dominated childcare service provision
were disadvantaged by corporate sector expansion. Many small private operators
in desirable catchment areas sold out to the corporate sector. As Business
Review Weekly reported:
Smeed of DHH Graham says the average cost of building a
child-care centre has increased from $500 000 to about $1 million in the past
two or three years. He says the increase is pushing owner-operators out of the
sector. 'It is getting out of the reach of the ordinary person,' he says. He
believes the involvement of a strong corporate sector ensures there is
sufficient capital to maintain high standards and continuity in the child-care
sector.[21]
2.18 The committee notes the evidence that it heard about
the predatory nature of corporate players in the childcare sector and the
longer-term concerns about quality care that were being voiced at the time of
the expansionist boom in 2002. It notes the reported concerns of the peak body
of small independently-owned childcare centres, the Australian Federation of
Child Care Associations, that the 'sheer financial muscle of the large chains
will swamp the smaller operators'.[22]
Chair, Ms Gwynn Bridge, was quoted as saying, in relation to predatory
corporate expansion:
[w]hat it means is that if the owners don't want to sell, the
large chains can just put up another centre and put them out of business...we
really need a return to a system under which the Federal Government designated
which areas were high needs and licensed accordingly...a child care centre is
very difficult to operate. A lot of these new players think it is just a
license to go in there and make money, but you need years of experience.[23]
2.19 The predatory nature of ABC Learning operations was
evident in other ways. Childcare operators and practitioners, regardless of
whether they are small independent operators or community sector operators are
normally keen networkers. It was noted in one submission that ABC Learning
staff remained aloof from interactions with privately operated centres. They
did not attend sector conferences or workshops. There appeared to be a 'silo'
effect in their training. Moreover, there appeared to be deficiencies in staff
trained by ABC, particularly in areas of management and centre involvement. It
is suggested that they became well-trained in economy.
An ex ABC applicant when interviewed by a private centre
director was intent on finding out how much money would be allocated for craft,
equipment etc. Interview applicants would normally be concerned with method of
programming; behaviour guidance techniques; professional development etc.[24]
2.20 Professor Alma Fleet, Head of the Institute of Early
Childhood at Macquarie University, was also warning in October 2002 that
quality childcare was costly, being dependent on low staff-child ratios. Fleet
was reported to be worried that many of the new centres relied on a standard
service delivery in order to contain costs which allowed for the payment of a
shareholder dividend. They would be unable to move beyond the mandatory minimum
staff-child ratios in order to cater for children with special needs or respond
adequately to cultural diversity.[25]
Under its new management, ABC Learning has acknowledged unfavourable
perceptions of its sacrificing quality for the sake of profit.
Those experienced in the childcare industry knew, given the
regulatory requirements, it was not possible to produce the kind of returns
being reported unless quality of care was being compromised. The seeds of
discontent as to the motives of the ABC management were sewn and the reputation
of ABC amongst childcare professionals further deteriorated.[26]
2.21 Further comment about perceptions of ABC Learning
programs are included in chapter three which relates to the quality of
childcare.
2.22 There were other early indications of the potential
problems of staffing childcare centres with qualified staff. Professor Collette
Tayler, Head of the School of Early Childhood at the Queensland University of
Technology, warned that the low level of salaries and conditions would
eventually conflict with the imperative on corporations to maximise profits.
Taylor is quoted as saying:
[t]he main problem is that there will be short-term pressure
to maximise profits, but the stronger demand is for childcare in the 0-3 age
group. Now, these services cost more to deliver, simply because little babies
need more attention. That will be a challenge, because in the long term,
quality of staff will determine whether or not that performance is sustainable.
Unless something is done we will be seeing massive shortages of trained staff
in a few years.[27]
2.23 By 2003, there were signs of emerging conflicts over
the involvement of corporate operators in the sector. Rapid expansion by the
operator Peppercorn (at that time the largest corporate operator in the
childcare sector) saw disputes with the Liquor, Hospitality and Miscellaneous
Union (LHMU) over the poor condition of newly acquired premises and
underpayment of staff.[28]
Peppercorn was taken over in December 2004 by ABC Learning. There were
increasing concerns over the quality of care when the 2003-04 financial records
for ABC Learning revealed that it spent only 56.7 per cent of revenue on staff,
compared to an average of 80 per cent paid by not-for-profit providers.[29]
2.24 Yet these were the boom days. The committee was
given a description of how the sector was affected by the close association of
corporate childcare and real estate interests by an experienced private
operator in Brisbane.
It was during its heyday, when centres were selling out
because they were getting top dollar to sell out to ABC, that a lot of the huge
growth started, with developers just building them up and selling them off. ABC
were a major buyer in that market. And it just kept going from there. Some
people who sold their medium-sized groups to ABC then went on to build and gain
more to sell them back to ABC. But the private sector, the individuals, were
still selling, but we had three corporates at that point and there was a bit of
a market to get good prices and so on....It brought a lot of people into the
industry but it became a worry when centres were going up in areas where we
knew that there was no demand. The aim, I think, in those days with a lot of
the developers was to build big and bright and shiny and entice the parents to
something that was very up-market—and the buildings were very spectacular in
many cases.[30]
2.25 The committee was told that the uncontrolled
expansion of childcare centres was a source of considerable anxiety for
operators who feared an oversupplied market. It was claimed that the government
was made aware of these views but its response was that market forces should
prevail.[31]
2.26 At the peak of its market share, ABC Learning was
the largest single corporate operator with about 30 per cent of the market,
according to its CEO, Eddy Groves. Some academics have put its market share
higher than that, given its program of acquisitions and construction. Writing
in 2008, Professor Susan Newberry (from the University of Sydney's Faculty of
Economics and Accounting) and Professor Deborah Brennan stated that, in particular
areas of Queensland and Victoria, ABC Learning was thought to have up to 50 per
cent of the market and that, in these and other areas, parents had little real
choice but to use an ABC-branded childcare centre.[32]
2.27 The following graph shows that the distribution of
centres was predominantly in Queensland, Victoria and NSW, with the remaining
states and territories having significantly smaller representation. This
illustrates the position of the company while it was still trading.
Graph 2.2: Distribution
of ABC Learning Centres (2008, prior to administration)
![Graph of the distribution of ABC Learning Centres (2008, prior to administration)](/~/media/wopapub/senate/committee/eet_ctte/completed_inquiries/2008_10/child_care/report/c02_2_gif.ashx)
Source: McGrathNicol; taken
from Department of Education, Employment and Workplace Relations, Submission
41, p. 3.
2.28 It was pointed out to the committee by one of the
acknowledged authorities on childcare that an extraordinary degree of market
concentration had been allowed to occur as a result of government policy.
Professor Deborah Brennan told the committee:
I think that everybody is aware that [the extraordinary level
of market concentration] is unusual, but I just want to really drive that home.
We think that ABC Learning had around 20 to 25 per cent of the Australian long
day care market. But in the UK the largest 40 providers altogether own 10 per
cent of the places, and in the USA all corporate chains together own 13 per
cent. So I argued, and I think this took Sue’s attention, that we have really
entered into a vast national experiment with our children in Australia. My
concern, and I am happy to elaborate on this, is about not individual private
for-profit centres but the system-level consequences of market concentration.[33]
2.29 Newberry and Brennan also made the point that ABC
Learning evidently recognised that its market dominance limited its scope for
further expansion in Australia and, for that reason, looked abroad for
investment possibilities.[34]
Eventually ABC Learning became the largest listed childcare company in the
world, owning similar businesses in the United States (where it was also the
largest corporate provider), Britain and New Zealand as well as in the
Philippines and Indonesia. This foreign expansion compounded the company's
difficulties when the collapse came in 2008.
2.30 During the course of 2008, in the lead-up to the
financial crisis, media and market speculation intensified about the financial
circumstances of ABC Learning. There were a number of worrying indications. The
intangible assets of the company ranged between 71 per cent and 81 per cent.[35]
This included the previously mentioned valuation of (valueless) operating
licences. The fall in the company’s share price was dramatic once questions
arose over questionable practices adopted by accounting firm Pitcher Partners
in the auditing of the company accounts. It became evident that a quarter of
the childcare centres were losing considerable amounts of money. Two leading
accounting firms were later called in to scrutinise the ABC accounts ending 31 December
2007. There were threats of legal action against the company, and ABC
Learning's co-founders Mr Eddy Groves and Dr Le Neve Groves left the company in
September 2008.
2.31 The new management of ABC Learning, in its
submission to the committee described these events thus:
[u]nfortunately the accounting practises that underpinned
this growth strategy appear to have served to materially inflate the true
underlying operating performance of the business which is at the core of the
problem. The public reporting of ABC’s profitability (Analysts forecasts in Jan
‘08 pointed to a profit of $200 million) gave rise to the perception that the
provision of childcare was an extremely lucrative and profitable industry. This
attracted significant investment and enabled ABC to accelerate its expansion
plans, including forays into international markets.[36]
2.32 Following the departure from ABC Learning of its
co-founders, a new interim CEO, Mr Rowan Webb, was appointed on 30 September
and Mr Matthew Horton, General Counsel and Company Secretary also joined the Board
on an interim basis. ABC Learning failed to lodge its financial statements with
the ASX by 31 October 2008. The company continued to operate until 6 November
2008, having given assurances that it was intent on trading its way through its
difficulties.
2.33 It is easy to speculate about the extent to which
the corporate policies of ABC Learning and the regulatory regime which
supervised such policies contributed to the collapse of the company. The
committee notes however that ASIC is conducting a review of the circumstances
surrounding the collapse; as such, a safer approach may be to reserve judgement
until this review is completed.
Salvaging the wreckage
2.34 The government was faced with the immediate problem
of having to maintain the services provided by ABC Learning. On 2 November
2008, ABC Learning advised DEEWR that the company was likely to enter into
voluntary administration almost immediately. Their banking syndicate indicated
they would appoint a receiver to ABC Learning if the company entered into
voluntary administration. This occurred on 6 November. In normal circumstances,
this would have meant that around 400 ABC Learning centres would have
ceased operating on entering into receivership. The assessment of the banks was
that the considerable number of ABC Learning centres operating at a loss would
need to be closed to limit the already serious financial loss suffered by the
banks. The government was aware of the 'catastrophic' consequences for tens of
thousands of children and their families, and for ABC Learning employees. There
would have been serious economic and social effects.[37]
2.35 The committee notes advice from DEEWR that the
department established, among other contingency measures, an internal childcare
industry taskforce on 24 September 2008 to manage what was occurring at ABC
Learning and to plan for either the consequences of the closure of childcare
centres or the company's insolvency. Discussions continued between DEEWR and
ABC Learning.[38]
2.36 On 7 November 2008, following discussions with ABC
Learning’s banks and the ABC Learning Receiver, McGrathNicol, the government
announced that up to $22 million, plus costs for the receiver, would be
made available to keep open about 400 loss-making centres until 31 December
2008. This was to allow time for the receiver to assess the viability of these
centres. A further sum of $34 million guarantee of funding during 2009 for 262
centres regarded as unviable (now known as the ABC2 Group) was made on 10
December 2008.
2.37 By the end of December, the receiver had identified
720 centres, equal to about two-thirds of all the centres, which could operate
into 2009. These became known as the ABC1 Group. Fifty-five centres closed on
31 December 2008, as there were suitable alternative centres located nearby,
and all children were offered alternative places at a nearby ABC Learning
centre. The majority of staff was redeployed.[39]
2.38 With the government having secured its objective of
maintaining childcare services through a large injection of cash, the
court-appointed receivers for ABC2, PPB, proceeded to sell off the ABC2
centres. By the end of 2008, around 3 300 people or entities had registered an
expression of interest with the receiver.[40]
The unprofitable ABC Learning centres were sold, some reportedly for as little
as $1,[41]
to 75 different operators from March 2009 on the condition such operators were
financially sound. Beyond that, buyers were required to sign documents
declaring they had no affiliation with ABC Learning founder and former chief
executive, Eddy Groves.[42]
Post-ABC complications and questions
2.39 The committee heard many comments on the reasons for
the collapse of ABC Learning, although none were given with any claim to
particular expertise. In its defence of ABC Learning, the new management of the
company which is soon to be liquidated pointed out that ABC’s investment in the
industry created a significant number of new centres as well as material
upgrades to existing services. This raised the standards of facilities and
provided additional places needed to cope with the increased demand for
childcare.
With the economics of childcare, as we know it now to be,
this investment would have been impossible because [the] financial case for
opening a centre to ABC’s standards would not be viable. The investor’s losses
have, in at least some part, been to the industries [sic] gain.[43]
2.40 This suggests that the childcare sector has
benefited from a windfall of unintended advantage, a large injection of funding
resulting from misjudgement about returns on investment. Looked at in these
terms, it would probably be argued that the expenditure of $56 million in
government rescue funding represents value for money. ABC Learning has made the
point that, as the economics of childcare currently stand, it is difficult to
see where the next level of investment will come from to cater for expected
future demand growth in the industry.[44]
In response to this, the committee notes that there has been considerable
expansion from small private operators and that this is likely to continue into
the future, bringing further investment into the sector.
2.41 The committee heard considerable commentary and
opinion about the dilemma which was presented to the government by the collapse
of ABC Learning. On the one hand, the government was faced with an obligation
to preserve childcare services, a responsibility apparently discharged by the
course of action that it followed. Financial support to ailing centres,
assuming a reasonable demand for their services, may be viewed as a practical
necessity. On the other hand, the sale and disposal of operating childcare
centres, which was a process in the hands of receivers and beyond government
control, was described in a number of submissions and by a number of witnesses
as disappointing. When asked about the possible decision by receivers to
sell-off ABC1 as a single tender, Professor Brennan remarked:
I am personally disappointed in the decision. I think a
unique opportunity had opened up through those very unfortunate events. I
personally would like to have seen really strong efforts made to introduce
genuine diversity back into the Australian child-care system.[45]
2.42 The perpetuation of a corporatist approach has been
evident in the way the sale of centres has proceeded. The normal processes of
company liquidation do not work well in the case of essential services. The
customary main obligation of receivers is to creditors of the failed company,
rather than to clients and customers. In this case, the division of assets
between profitable and unprofitable centres took no account of the fact that,
in the provision of a public service, a degree of cross-subsidisation is
required to ensure equity in the provision of services. The committee was told
that, as far as was known, there were no children's services experts consulted
in regard to decisions about which centres were viable.[46]
The committee notes the claim that the Receiver of ABC Learning, McGrathNicol,
apparently considered that, although over 200 centres were unviable under the
ABC operating model, they could still be considered viable under a
not-for-profit model.[47]
As the submission from KU Children's Services explained:
[s]adly this fails to recognise that generally the
not-for-profit model is more expensive than the ABC model due to such things as
higher quality of care (including higher staff to child ratios and better
qualifications and experience) and the inclusion of children with additional
needs (such as children with a disability, children with Aboriginal and Torres
Strait heritage, children from culturally and linguistically diverse
backgrounds, children at risk and children with challenging behaviours.[48]
2.43 The KU submission further explained that the only
means through which a community organisation could operate unviable former-ABC
Learning centres would be to 'package' them with viable centres. Had the
receivers disposed of the assets in a way which facilitated this, more
community-based and not-for-profit organisations would have offered to take
over ABC Learning centres. On the other hand, the committee also heard comment
that not-for-profit childcare organisations would also have been deterred from
buying up ABC Learning sites because of their ties to corporate landlords.
Rents would have been as high as several hundreds of thousands of dollars a
year in some cases. Australian Community Children's Services told the committee
that inadequate information was provided to tenderers, which deterred many
potential buyers from making bids. The likely adverse effect of
higher-than-market-rate rents was a deterrent to the non-profit community
sector which regarded such centres as unsustainable over the medium to long
term.[49]
KU submitted that community providers had been urging the government to use the
collapse of ABC Learning 'as an opportunity to reset the policy levers to
rebalance the provision of childcare'. Since this opportunity was not taken up,
KU feared that an important opportunity had been lost.[50]
2.44 Many submissions to the inquiry opposed the
Receiver's potential sale of over 700 ABC Learning centres (known as the ABC1
tender) as a 'job lot' to a single purchaser, and have expressed alarm at the
likely consequences. It is feared that such a resolution would run counter to
the need to ensure wider diversity of choice in the sector and that it would anticipate
the maintenance of a corporatist model of childcare which has been discredited
by the experience of ABC Learning, not only because of its collapse but because
of the doubtful quality of the service it provided even at its peak.
2.45 A representative of KU Children's Services told the
committee that the missed opportunity for the government was its acquiescence
with the intentions of the court-appointed receivers of the ABC2 centres which
were nominated as unviable and sold off first.[51]
The representative claimed that the government would have had more say in this
process than it would in dealing with the receivers of the ABC1 Group. Commenting
upon the degree of parental stress eight months on from the closure crisis, the
representative gave her view that, while there was a widespread belief that
things had settled down, circumstances are essentially unchanged from before
ABC Learning collapsed and that there is likely to be a recurrence of the ABC
collapse, although this might not happen for five years.[52]
2.46 The committee is aware, however, that Minister
Gillard made known her concern to have much wider not-for-profit and
community-based childcare on offer to provide more diversity in the sector and
expected that this would be facilitated by transfers of ownership during the
ABC2 tender round.[53]
The court-appointed receivers have indicated that diversity has been achieved
in the sale of the ABC2 centres. In April 2009, PPB noted that it had
identified 'a diverse range of operators including not-for-profit
organisations, individual owner operators and private operators'.[54]
The Minister for Early Childhood Education, Childcare and Youth, the Hon Kate
Ellis MP, in a Ministerial Statement on 15 September 2009, told the House of
Representatives that the largest single buyer of ABC2 centres was a
not-for-profit provider, Mission Australia. The sale process resulted in more
than 70 diverse operators taking over ABC2 centres.[55]
The future of corporate childcare
2.47 The National Childcare Accreditation Council (NCAC)
has submitted that the collapse of ABC Learning has highlighted the adverse
consequences of allowing any single provider to dominate the supply of
childcare. It stated that the government is currently in a 'unique' position to
remedy an imbalance which has been allowed to develop and to prevent its
recurrence.[56]
As the evidence suggested, the government had less opportunity to restructure
the control and ownership of the childcare sector in the wake of the ABC
Learning collapse than might appear. 'De-corporatising' the childcare sector
becomes much harder in normal corporate insolvency processes which generally
preclude government intervention.
2.48 Although it is of small comfort to parents and their
children who experienced dismay at the disruption to their lives at the end of
2008, there is some truth to the claim that the demise of ABC Learning has been
in the best interests of childcare provision.[57]
It adds urgency to the tasks already being undertaken by COAG to agree to a
national approach to childcare provision, to implement commonly-agreed
standards, to provide for their enforcement and to lift minimum standards of
training and the employment status of those who work in the sector. It has also
refocused public attention on the issue of quality of care. As the committee
makes clear in later chapters, the matter of who runs the childcare centres
across the country, provided there is real diversity in the sector and genuine
choice in the provision of care, is less important than the dedication,
commitment and quality of care demonstrated by those who provide it.
2.49 As this report is prepared for tabling, the
receivers are proceeding with the sale of the ABC1 tranche of 720 childcare
centres. This could be delayed to the end of 2009 or beyond. It is difficult to
imagine that any prospective buyers would be unaware of the changed childcare
policy climate. ASIC and ACCC will be more vigilant in areas of corporate
governance and, as will be made clear in the following chapter, the public mood
is swinging toward much tighter regulation in the pursuit of quality care and
learning outcomes, as reflected in recent regulatory tightening at the state
level.
2.50 While the committee recognises a high level of
scepticism about the ability of corporate bodies to provide childcare of a
quality comparable with small independent operators, not-for-profit providers
and community-based centres, it believes that the final test of this is whether
corporate providers are willing to cater comprehensively for children with a
full range of needs and pay good salaries for well-qualified staff. Quality is
the test. Any organisation which establishes centres which put the needs of
children first in these circumstances is a contributor to the common good.
Conclusion
2.51 The committee recognises the difficulty in
determining policy in regard to the control and ownership of childcare centres
when the only source of government support comes to centres indirectly though
Child Care Benefit payments. The committee believes that the provision of
services is best provided by small-scale or individual independent operators
and by not-for-profit and community-based organisations. The role of
corporations as childcare providers appears to be broadly accepted but, in the
light of more stringent quality standards, their costs for labour as a
proportion of outlays will rise to the level of other providers. Accountants
and auditors advising corporations will need to be aware that there are
important non-financial accountability and compliance tests that will need to
be met. Childcare centres are not just a business – they must be in the service
of the common good.
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