ABC Learning Centres facing shareholder class action

Beleaguered childcare centre operator ABC Learning Centres will be forced to fight a class action from shareholders alleging misleading and deceptive conduct and breaches of continuous disclosure obligations between August 2007 and April 2008.

Beleaguered childcare centre operator ABC Learning Centres will be forced to fight a class action from shareholders alleging misleading and deceptive conduct and breaches of continuous disclosure obligations between August 2007 and April 2008.

The class action, which is being underwritten by litigation funder IMF, is open to all shareholders who bought ABC shares during that period. The claim will need a certain level of shareholder participation to proceed.

IMF’s claim alleges ABC did not disclose developer contracts and fee arrangements between the release of its preliminary accounts on 27 August 2007 and the release of a shock profit downgrade for the child care company’s 2008 earnings on 22 April.

During this period, the company’s share price plunged from $7.07 to $1.36, sparking a series of margin calls that forced ABC directors – including Eddy Groves and his wife Le Neve – to sell large stakes in the company.

The developer arrangements in question involved contracts that forced developers to pay fees to ABC to cover any shortfall in childcare centre revenue. IMF argues these arrangements made it difficult for shareholders to understand the quality of ABC’s earnings.

ABC said in a statement that it has not received any claim or any notice of claim. “The IMF announcement merely reflects an intention by IMF to possibly fund a claim provided IMF obtains a level of participation acceptable to IMF. No claim may ever be commenced.”

The childcare giant also argues that its share price was affected by a number of factors during that period, including the margin loan problems, short selling in the company’s shares, global credit market conditions and general market volatility.

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