AUST'S ABC LEARNING FAILED TO STOP BUYING PROPERTY: FMR CHAIRMAN

20 April 2010
(c) 2010 Asia Pulse Pty Limited

SYDNEY, April 20 Asia Pulse - Management of failed Australian childcare company ABC
Learning ignored board orders to stop buying childcare centres, following its disappointing first
half results in 2008 when markets were on the brink of a global downturn.

Former ABC Learning chairman David Ryan told the Federal Court in Sydney on Monday that he
was concerned about the company's liquidity position in mid-2008.

Mr Ryan was giving evidence at a public examination into events leading up to ABC Learning's
collapse in 2008.

ABC Learning, Australia's largest childcare centre operator, went into administration and
receivership in November 2008, owing more than A$1 billion (US$924.9 million).

The examination, which is under privilege and cannot be used to lay criminal charges, is being
overseen by ABC administrators Ferrier Hodgson.

The hearing is to determine whether ABC Learning traded while insolvent in 2008, as alleged by
Ferrier Hodgson.

It has also been alleged that the board could have breached its duties by not putting ABC Learning
in administration earlier.

Mr Ryan told the court he wanted ABC Learning to be "squishing down" pipeline activity and to
deleverage (pay down debt) on its balance sheet.

These aims were to protect the liquidity of the company following a huge drop in its first half 2008
profit, and as global markets were moving towards a "dangerous place", he said.

"The world was changing economically very rapidly ... it was a very complex time," Mr Ryan said.

ABC Learning in February 2008 reported a 42 per cent fall in first half profit to $37.1 million.

Mr Ryan told the court that management ignored several board resolutions to slow the rate of
acquisitions and instead continued buying childcare centres in Australia and the US.

He said the company's board of directors passed a resolution in November 2007 and several
resolutions in February 2008 to halt further acquisitions, but they continued.

One deal included a $3 million deposit for four childcare properties by head of Australian
operations Martin Kemp but which was later treated as a "mistaken payment".

ABC Learning grew from about 40 centres when it listed in 2001 to almost 2300 at its peak before
its collapsed.

Document: ABC Learning.doc

Author: Warren Staples
Save Date: 22/04/2010
Page 1 of 2
Mr Ryan told the court that his attempts to find out why the boardroom resolutions were ignored by
management were unsuccessful and that he could not get a good enough answer from ABC co-
founder and global chief executive Eddy Groves.

"He (Mr Groves) didn't have a satisfactory explanation other than he thought the resolutions only
applied to Australia."

Mr Groves had decided to purchase further contracts in the US, he said.

Mr Ryan said he spoke to Mr Groves hundreds of times during board meetings and outside
meetings during the first half of 2008.

He said that his position as chairman, which he started in May 2008, occupied a great deal of his
time.

Mr Ryan also said financial information was not presented in a timely manner to the board.

The court was shown one email from Mr Ryan to former chief financial officer James Black
expressing Mr Ryan's outrage about the delayed financial statements to the board.

"This is me belting the table as loud as I can about an issue I'm agitated about," Mr Ryan said about
the email.

Mr Ryan said the timelines of the company's financial information improved when John Gadsby
became acting chief financial officer in 2008.

Mr Ryan said a standard question at every board meeting was to ask if the company was solvent and
the question was always yes.

There was no concern within the company that ABC was insolvent, he said.

However, Mr Ryan admitted that he took independent advice from law firm Freehills about the
solvency of the company after speaking to management

Document: ABC Learning.doc

Author: Warren Staples
Save Date: 22/04/2010
Page 2 of 2