In 2005, when I worked in Brisbane for BRW magazine, I made several trips out to the garishly-decorated offices of Eddy Groves’ childcare empire, ABC Learning. Back then, Eddy was in full flight — his company was worth billions, he was expanding overseas and his personal fortune was soaring. But the cowboy boots and flash cars weren’t enough for Eddy to shake the feeling that his critics were out to get him.
Some investors didn’t understand his business. Analysts didn’t get why global expansion was a legitimate goal. The unions didn’t get why the cottage industry of childcare needed to be corporatised. The do-gooders couldn’t understand that for-profit childcare could work and was delivering great results.
As it turned out, many of Eddy’s critics were right. I’ll leave the arguments for for-profit childcare to someone else, but there is little doubt that the investors and analysts who questioned ABC Learning’s business model were bang on.
Groves was silly to risk what was a reasonably strong Australian childcare business by going overseas. And the business was woefully difficult to understand, and rife with the sort of things — related party transaction, poorly put together financial statements — that make sensible shareholders shudder with fear.
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It’s well known now, for example, that Groves’ brother-in-law Frank Zullo was the beneficiary of $110 million of maintenance works which never went to tender. It’s also well known that ABC Learning paid millions to companies in which Groves owned stakes, such as the broking house Austock and the Brisbane Bullets basketball team.
And it’s patently clear that Groves oversaw and signed off on financial reports in 2007 that wildly overstated ABC Learning’s revenue by including fees that had nothing to do with the provision of childcare services.
After ABC’s collapse in 2008, it became clear that if Eddy was worried about anyone being out to “get” him, he should have been worried about the Australian Securities and Investments Commission, which flexed its muscles and dived into a long and thorough investigation of the ABC collapse and the roles of the directors in it.
Turns out, Eddy had nothing to worry about there either.
Today it has been revealed by Fairfax that ASIC has quietly lifted a freeze it had placed on Groves’ assets, which include a number of properties. The move comes just months after the watchdog quietly dropped charges against Groves over his role in helping former ABC Learning director Martin Kemp breach his director’s duties. Kemp was found not guilty of those charges in June.
Indeed, ASIC’s only scalp in the ABC collapse is an auditor by the name of Simon Andrew Peter Green, who was working at Pitcher Partners when he signed off on the 2007 accounts that misstated ABC Learning revenue so badly. Green cannot audit a company for five years.
While litigation funder IMF still has a case running over ABC Learning’s collapse, it would be great to hear from ASIC as to where its investigations are at and why, four years after the collapse of ABC, none of the company’s managers or directors have faced any legal action.
Is it because the managers or directors did not do anything that could result in legal action? Is it because ASIC has been hamstrung by the law? Is it because ASIC does not have the resources?
ASIC doesn’t comment on investigations, so don’t hold your breath on getting answers to these questions. But we have to conclude that going after the people behind big collapses is not as clear cut as it might seem.
The question is: why?
*This article was originally published at SmartCompany