ABC Learning Collapse
Of the six suggested reasons for corporate failure, overexpansion and ill-judged acquisitions, ineffective boards, and failure of internal controls contributed significantly to the collapse of ABC learning (Hamilton & Micklethwait, 2006). Regarding over-expansion and ill-judged acquisitions, ABC primarily collapsed due to borrowing vast amounts of money to expand in both Australia and abroad rapidly. It moved beyond Australia to countries such as the U.K, U.S, and New Zealand, intending to convert the cottage childcare industry into an international business. It was a reasonable plan at the start but was not poorly executed through measures such as acquisitions which in the long run, became ineffective. In the wake of an international crisis, the company was not able to refinance its massive debts, which finally lead to administrators being called in. In the end, the company had expanded too much for its own good.
The over-expansion was not because of the free market that the company operated in. Instead, the primary cause was the high regulation level that was already existent in the childcare industry. ABC was able to generate instant money, without the need for opening new centres, hiring new staff, or attracting more clients. Easy money made it easy for the company to take on huge debts and over-expand.
The failure of internal controls was also a critical factor that led to the company’s collapse, which is mainly contributed by weak, ineffective audit functions. The audit system of ABC Learnings was characterized by manipulated accounts and an apparent lack of transparency. It is undoubtable that there were fundamental errors in the accounting bookkeeping of ABC learning, and it was also not maintained correctly. There appear to be notable discrepancies in the profits, revenues, and figures that were given in the company books. Many assets were written off, and pre-tax income was inconclusive. When administrators took over ABC Learning during its period of receivership, the auditors established that the company’s accounts were highly tampered with and that the accounts required re-instating (Kruger, 2009). Also, the business operations of the company were not transparent. A clear plan of how every centre would run had not been devised, and other factors such as the costs related to every centre, the centres’ performances and the period it would take for such centres to be commercially viable.
Based on the third reason for corporate failure-ineffective board, the management of the company was over-involved in the expansion of the company’s operations beyond Australian boundaries until if forgot to put into consideration the real problems at stake. The board was comprised of members who were primarily politicians who did not have knowledge or expertise to handle the childcare industry. Also based on management issues, government regulation had kept competition at bay, resulting in increased prices. The lack of regulation to guide the free market was a key management issue
Overall, ABC Learning had ventured into an industry with a massive demand for childcare services of high quality. However, because of an ineffective board, overexpansion and ill-judged acquisitions, failure of internal controls through an ineffective audit system, the company had to collapse (Hamilton & Micklethwait, 2016).
References
Hamilton, S., & Micklethwait, A. (2016). Greed and corporate failure: The lessons from recent disasters. Springer.
Hamilton, S., & Micklethwait, A. (2006). Greed and Corporate Scandal. PalgraveMacmillan, Basingstoke.
Kruger, C. (2009). Lessons to be learnt from ABC Learning’s collapse. Sydney Morning Herald. Retrieved March 9, 2020, from https://www.smh.com.au/business/lessons-to-be-learnt-from-abc-learnings-collapse-20090101-78f8.html