Banks settle in ABC Learning case

The big four banks have agreed to an undisclosed settlement in the case against them by the liquidator of ABC Learning Centres.

The settlement, which was agreed to ahead of a Federal Court case scheduled to start today, relates to a charge taken by the Commonwealth Bank and six other banks in the lead-up to the collapse of the childcare provider in 2008.

The banks took a $1.25 billion floating charge over the company's debt just months before it collapsed, enabling them to be first in line for compensation ahead of other creditors, including employees, in the event of ABC's failure.

The banks' action meant the wages of childcare workers had to be covered by taxpayers through the government's General Employee Entitlements and Redundancy Scheme when ABC collapsed in November 2008.

Today's settlement means the Federal Government will be reimbursed millions of dollars after a wait of more than six years and former employees will receive unpaid entitlements.

Bentham IMF executive director John Walker said the settlement would not have been possible without a vibrant litigation funding regime and it illustrated the importance of third-party funders in facilitating access to justice.

“This was a David versus Goliath battle, with small creditors and childcare workers on the one side, facing off against the country’s largest banks on the other,” he said.

“This settlement would not have been achieved had it not been for litigation funding.

"Equality of arms is essential for achieving justice in our adversarial civil justice system; a fact that needs to be taken into consideration by the Federal Attorney General, Senator George Brandis, in his current deliberations on regulating litigation funding.

"I hope the interests of the everyday Australian, those that cannot afford the justice system, are given the consideration they deserve.”

IMF said the settlement would generate revenue of $17 million for it and a profit after capitalised overheads but before tax of about $5 million.

ABC Learning Centres was established by South African-born, Queensland-based Eddy Groves and his wife Le Neve in 1988.

The company grew rapidly to become the biggest publicly listed child care operator in the world, reaching a market capitalisation of $4.1 billion.

But the business collapsed in November 2008 under a mountain of debt and amidst allegations of poor financial management and related party financial dealings.

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