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Child Care Provision In Australia. The Impact of the Collapse of a Large Provider. Background. Child Care in Australia. Child care provision exist in Australia has a strong emphasis on provision by private-for-profit providers. In 2004-05 of all child care services:

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Child Care ProvisionIn Australia

The Impact of the Collapse of a Large Provider

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Child Care in Australia

  • Child care provision exist in Australia has a strong emphasis on provision by private-for-profit providers. In 2004-05 of all child care services:

    • 71% for profit were privately managed

    • 26% were community managed or not for profit

    • 3% were Government

  • More than half the child care services in Australia are operated by small providers who have between 1 and 3 centres/services.

  • Government subsidies are largely in the form of fee reimbursements to parents (available to services that meet quality assurance requirements).

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Significant Expansion in Child Care Places

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The Growth of a Major Corporate Provider

  • ABC Developmental Learning Centres was founded in 1998 (mainly targeted long day care centres with children aged 0-5)

  • ABC expanded over the next three years, reaching 43 child care centres by June 30, 2001.

  • By November 2005, it had 697 Early Childhood Education centres throughout Australia and New Zealand.

  • By July 2007, it ran 1084 centres in Australia; around 25% of all child care services.

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ABC at the Time of the Collapse

  • 1037 child care centres in Australia

  • 25% of Long Day Care market

  • Over 100,000 children

  • 16,000 staff

  • $1.43 Billion debt

  • $88.5 Million annually in Government Child Care Benefit

  • 1,000 centres also in USA, 100 in UK and 100 in NZ

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What was Right with ABC?

  • Accreditation standards

  • Staff qualifications

  • Support for staff

  • Building standards

  • Opening hours

  • Services provided

  • Value for money

  • Brand recognition

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What was Wrong with ABC?

  • Company financial records

  • Lack of autonomy for centre staff

  • Insular organisation

  • Top heavy with administrative staff

  • Contributed to oversupply of child care places

  • Complicated and expensive lease/building arrangements

  • Debt driven, ruthless acquisition policy

  • Complex organisation and governance structure

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Chronology of Events

March 2008 – Reports Eddy Groves had sold almost all his stake in the company. ABC’s share price plummets. Company enters voluntary trading halt.

September 2008 – Company cannot provide end of year results- leads to further drop in share price and trading halt extended.

24 September 2008 -Child Care Industry Taskforce (CCIT) established.

30 September 2008 - Eddy and Le Neve Groves resign all management and Board positions at ABC Learning

10 October 2008 - ABC Board acknowledge that their financial circumstances are far more serious than was previously apparent to them.

6 November 2008 - ABC Learning enters voluntary administration and a Receiver is appointed.

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Why did the Government Need to Respond?

  • Possible major social and economic disruption in many Australian communities.

  • Employees were likely to have been terminated without their entitlements being paid.

  • There was likely to have been extended confusion and chaos while the business issues were resolved.

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How Did the Government Respond?

  • 7 November 2008 – Government announces $24 million support package to keep centres operating to 31 December 2008

  • 10 December 2008 – McGrathNicol announces that 55 centres will close at the end of the year, 720 will continue as ABC with the intention of selling as a single group.

  • 10 December 200 –Government announces a further $34 million package to fund the remaining 262 “unviable” centres (ABC 2) pending their sale.

  • Remaining 262 “unviable centres” transferred to a new company (ABC2) placed in hands of Court Appointed Receiver.

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What did the CAR do?

  • Undertook process for the sale of the unviable centres

  • Negotiated the sale, transfer or closure of all the ABC2 centres

  • Managed the contract with McGrathNicol to continue the day to day operation of the centres.

  • Assisted families at closing centres to secure suitable alternative care.

  • Assisted staff at closing centres to secure comparable employment

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The Court Appointed Receiver (CAR)

Of the 262 ABC2 centres:

  • 34 centres were sold to 5 different not-for-profit operators.

  • 202 centres were sold to for-profit operators

  • 26 have been closed

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Establishment of Not-For-Profit Syndicate: GoodStart

  • ABC Receiver, announce process for the sale of remaining 720 ABC centres on 31 August 2009.

  • GoodStart (made up of four non-profit organisations) is established with philanthropic investment and loans from the Australian Government.

  • A new level of collaboration and cooperation between the Government, the not-for-profit sector and private investors.

  • GoodStart: emphasis on quality, aims to create a vibrant, child-focussed early learning organisation.

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Final Outcome

  • Of the ABC centres not transferred to the Court Appointed Receiver:

    • 16 centres were dealt with prior to the sale process, and 706 were offered for sale.

    • 571 centres have been purchased by GoodStart.

    • GoodStart is negotiating to purchase another 107 centres.

    • The Receiver has negotiated the sale of another 24 centres.

    • The Receiver was unable to secure purchasers for 4 centres which have or will soon close.

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Post ABC Collapse

  • Over 90 per cent (952 out of 1037) of the original ABC Learning Centres operating in Australia at the time of the collapse are still operating today.

  • After the GoodStart sale the projected long day structure is:

    • Privately managed (64%)

    • Community managed or not for profit (34%)

    • Government (3%)

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Reducing the risk of a similar corporate collapse

  • New operators must demonstrate that they are suitable to operate a child care centre.

  • Operators must give 42 days notice before they close a child care centre.

  • Monitoring of child care centres has been strengthened.

  • A new civil penalty regime has been introduced.

  • In the 2009-10 Budget, the Government, subject to consultation, announced plans to:

  • The financial viability of large Long Day Care (LDC) providers will be assessed before they are approved for Child Care Benefit (CCB) and will be reassessed each year.

  • The Minister for Education will have new powers to commission an independent, confidential investigation or audit.