FEDERAL COURT OF AUSTRALIA

ABC Learning Centres Limited, in the matter of; application by Walker (No 3) [2008] FCA 1945

PETER WALKER & GREGORY MOLONEY (IN THEIR CAPACITY AS VOLUNTARY ADMINISTRATORS OF ABC LEARNING CENTRES LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED) & ORS, IN THE MATTER OF ABC LEARNING CENTRES LIMITED (ADMINISTRATORS APPOINTED) (RECEIVERS & MANAGERS APPOINTED)  and ORS

NSD 1780 of 2008

EMMETT J

13 NOVEMBER 2008

SYDNEY

IN THE MATTER OF ABC LEARNING CENTRES LIMITED & ORS,

ACN 079 736 664

THE COURT ORDERS THAT:

1.                  Pursuant to section 447A(1) of the Corporations Act 2001 (“the Act”), Part 5.3A of the Act is to operate in relation to each of the Second Plaintiffs:

(a)        as if section 436E of the Act read, in respect of each of the Second Plaintiffs, as if each of the following new subsections were inserted:

(5)        At any meeting of creditors of one of the ABC Group Companies convened under sub-section (1), the meeting may by resolution determine:

(a)        whether to appoint a committee of creditors for the ABC Group Companies; and

(b)        if so, who, up to a maximum of 10 persons, are to be the members of such committee.

(6)        In this Part 5.3A (and in section 9 of this Act insofaras definitions are relevant to Part 5.3A):

ABC Group Companies means each of the Second Plaintiffs in proceeding No NSD 1780 of 2008 in the Federal Court of Australia;

ABC Group Committee means the Committee appointed under a resolution referred to in sub-section (5)

committee of creditors means, in respect of each of the ABC Group Companies, the ABC Group Committee

(b)        as if section 436F of the Act read, in respect of each of the ABC Group Companies, as if the following new subsection were inserted:

(4)        For the avoidance of doubt, the ABC Group             Committee has the powers and functions of a committee of creditors.

(c)        as if section 436G of the Act read, in respect of each of the ABC Group Companies, as follows:

(1)        A person can be a member of the ABC Group Committee if, and only if, the person is:

(a)        a creditor of one or more of the ABC Group Companies;

(b)        the attorney of such a creditor because of a general power of attorney; or

(c)        authorised in writing by such a creditor to be such a member.

(2)        If a member of the ABC Group Committee is a body corporate, the member may be represented at meetings of the ABC Group Committee by:

(a)        an officer or employee of the member; or

(b)        an individual authorised in writing by the member for the purposes of this subsection.

(d)        such that the First Plaintiffs:

(i)         may conduct the meeting of creditors of each of the Second Plaintiffs convened pursuant to section 436E as a combined and concurrent meeting, without the requirement for a resolution to that effect; and

(ii)        may treat all proofs of debt of any creditor of a Second Plaintiff, admitted by the First Plaintiffs for the purposes of voting at the section 436E Meeting, as a creditor, for the purposes of that meeting only, of each of the Second Plaintiffs, so as to permit all such creditors to vote once in respect of the resolution to be put to the meeting in relation to the ABC Group Committee referred to in Order 1(a).

2.         Order 1 above shall not apply to a Second Plaintiffs if at the meeting of creditors of that Second Plaintiffs convened pursuant to section 436E of the Act a contrary resolution shall be passed by the creditors of that Second Plaintiffs.

3.         The costs and expenses of this application be costs and expenses of the administration of the Second Plaintiffs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

Schedule 1

All in Administration and with Receivers and Managers Appointed

IN THE MATTER OF ABC LEARNING CENTRES LIMITED & ORS,

ACN 079 736 664

REASONS FOR JUDGMENT

1                     This is another application brought by the administrators (the Administrators) of ABC Learning Centres Limited and its associated companies (the ABC Group).  ABC Learning Centres Limited (ABC) is a publicly listed company.  It provides early childhood development, day care and education programs to children throughout Australia in both franchised and managed childcare centres.  I indicated in the reasons I gave for making orders yesterday some of the background of the ABC Group Companies (see ABC Learning Centres Limited, in the matter of; application by Walker (No 2) [2008] FCA 1944). 

2                     As I then indicated, the Administrators were appointed on 6 November 2008.  Shortly after their appointment, receivers and managers (the Receivers) were appointed by CBA Corporate Services NSW Pty Limited on behalf of a syndicate of banks that have provided financing to the ABC Group.  ABC is the principal borrower of funds for the ABC Group.  All members of the ABC Group are liable to the syndicate of banks.  ABC is the principal debtor, but each of the other members of the ABC Group has given a guarantee in respect of ABC’s liability to the banks. 

3                     The recording of the financial affairs of the ABC Group is not without complexity.  Inter-company loan accounts have been created as between ABC and other members of the ABC Group and as between other members of the ABC Group.  ABC also receives dividends from various subsidiaries and, in better times, paid dividends to its shareholders. 

4                     Financial accounts are normally produced as at 30 June in each year for statutory purposes.  Separate annual financial accounts for the individual members of the ABC Group have not been prepared since 30 June 2007.  The financial statements for the period ending 30 June 2008 are still being reviewed by newly appointed auditors.  There appears to have been what seems to me to be an unusual practice for the individual members of the ABC Group to prepare their own individual financial statements, based on the ABC Group’s financial statements, once those group statements had been settled.  It is not entirely clear just how that process operated. 

5                     In the daily management of the accounting systems for the ABC Group, it appears that all creditors are treated as creditors of ABC Developmental Learning Centres Pty Limited (Developmental).  All such creditors are processed, in the first instance, through the books of Developmental.  The management of the ABC Group prepare monthly group consolidated accounts, but do not prepare management accounts for individual members. 

6                     In excess of 1000 childcare centres are operated across Australia by members of the ABC Group.  Developmental operates approximately 700 such centres under various leases.  A further eight companies in the ABC Group also lease centres, the operations of which are conducted through Developmental.  Approximately 340 centres are involved in that structure. In addition, operations in the United Kingdom are operated through three other companies. 

7                     Many of the members of the ABC Group Companies have no assets other than inter-company loans and no liabilities other than inter-company loans.  Developmental employs all of the permanent staff who work at the 1,040 centres in Australia.  There are approximately 16,000 employees, including over 100 accounts staff.  The precise number of permanent employees fluctuates by reason of seasonal considerations, holidays, family movements, and the optimisation of carer to child ratios.  In addition, there is a significant number of casual staff.  However, casual staff are employed by an organisation trading as 123 Careers, which is a recruitment placement agency.  That organisation provides casual staff on a contract basis.  Accordingly, Developmental does not treat casual staff as creditors.  However, 123 Careers is treated as a creditor in respect of such casual staff. 

8                     Apart from financial creditors and employee creditors, companies within the ABC Group have trade and supplier creditors.  Such creditors may be owed liabilities by several of the members of the ABC Group.  It seems that there are approximately 400 creditors in total apart from permanent employees, unsecured note holders and the secured debts of the syndicate of banks.  The total value of creditors’ claims consisting of trade creditors, statutory creditors and employees is approximately $110 million.  That sum does not include inter-company loans or contingent liabilities. 

9                     Because the shares in ABC are listed for quotation, the Receivers consider that it is likely that claims may be made by shareholders and that they may be treated as creditors in respect of some of those claims.  At this stage, however, it is impossible to assess the likelihood or level of such claims.  The sum of $110 million also excludes the liabilities owing to the syndicate of banks, which amount to approximately $860 million and the amount owing to unsecured note holders estimated to be approximately $600 million. 

10                  That very brief summary of the financial state of the ABC Group indicates the level of complexity involved.  That complexity has resulted in the application brought this afternoon. 

11                  The first meetings of creditors of the members of the ABC Group have been convened pursuant to the provisions of the Corporations Act 2001 (Cth) (the Act) to be held at 11 am on 18 November 2008 in Brisbane.  Under the provisions of Part 5.3A of the Act, it will be necessary for there to be separate meetings of the creditors of each of the 39 companies in the ABC Group.  The functions of the first meeting are to appoint a committee of creditors and to appoint an alternate administrator if the creditors so desire.  The Administrators, as I have said, are administrators of all of the companies in the ABC Group.  They propose that, as a matter of convenience, there be one committee of creditors for all 39 members of the ABC Group and that that committee be limited to ten persons.  

12                  The Administrators consider that it would be impracticable to have creditors’ meetings separately conducted for such a large number of associated companies.  Separate meetings can often lead to confusion in the minds of creditors, quite apart from the complexity of conducting 39 separate meetings and ensuring that only the creditors of a particular company vote at the meeting of that company’s creditors.  It is inevitable that the time taken for the conduct of such meetings will be extensive.  I have indicated briefly the number of employees and creditors who will be involved and at this stage it is not possible for the Administrators to be certain of the numbers of creditors who have claims against individual members of the ABC Group.

13                  The administrators have therefore applied for orders under s 447A of the Act that Part 5.3A operate in relation to each member of the ABC Group in such a way as will ensure that there be only one concurrent meeting of all creditors and that there be only one committee of creditors to give advice and assistance to the Administrators in relation to the affairs of all the companies in the ABC Group.  In the circumstances, I propose to accede to the Administrators’ application. 

Associate:

Dated:         13 January 2009