MORE than two years after the multibillion-dollar collapse of ABC Learning, the corporate watchdog has zeroed in on a single email from founder Eddy Groves, concerning a $3 million transaction, as the focal point of its case against him.
Groves pleaded not guilty in the Brisbane Magistrates Court yesterday to the criminal charge of breaching his duties as a director of ABC Learning.
"I've pleaded not guilty today and I will vigorously defend the charge, and that's really all I can say right now," Groves told reporters outside court.
Another executive, Martin Kemp, faced three charges of breaching the Corporations Act. He did not enter a plea and refused to talk outside court.
The Australian Securities and Investments Commission said the four charges related to a transaction in January 2008, weeks before the company's troubles became apparent.
Groves approved contracts through which Kemp purported to sell three childcare centres owned by companies controlled by Kemp to ABC.
ABC paid a deposit of just over $3 million, 75 per cent of the purchase price.
Groves was global chief executive of ABC at the time and Kemp was head of the company's Australasian operations.
While the transaction is minor in size compared with the deals and practices which may have contributed to ABC's collapse, the corporate regulator said "the charges are part of an ongoing ASIC investigation", hinting that it may be the first of many.
Alan MacSporran, SC, for the Commonwealth Director of Public Prosecutions, told the court Kemp had emailed Groves seeking approval to pay the deposit related to the deal.
Mr MacSporran said Groves emailed back approval for the transaction. "That's the significant basis for charging Mr Groves," he said.
ASIC claims that Groves breached the Corporations Act and failed to discharge his duties as an ABC director "in good faith and in the company's best interests and was dishonest by approving the payments made to Mr Kemp's companies between January 9 and 12, 2008."
It claims Kemp breached his duties as a director and used his position as an ABC director to "dishonestly gain an advantage for himself" from the transaction.
ASIC claims Kemp also failed to discharge his duties as a director of ABC in good faith and was dishonest when he failed to disclose the transaction to ABC's board.
Peter Davis, SC, acting for Groves, said Kemp had proposed the transaction while Groves was overseas.
Mr Davis said Groves had been the CEO of ABC Learning but Kemp was in charge of overseeing the financial and legal departments. He said Groves received nothing from the transaction and his only involvement was alleged to be the sending of an email.
"The case is such that even witnesses to be called by the Crown are going to say that email is ambiguous," Mr Davis said. "Mr Groves wishes to have this prosecution held as quickly as possible."
Paul Galbally, for Kemp, called for a longer adjournment of four to six weeks, saying the Commonwealth was yet to make available further documents related to the case.
Groves and Kemp have been granted bail subject to conditions that include surrendering their passports to ASIC, which essentially continues the travel ban placed on Groves in 2009.
The matter is due back in court on February 25.
Frequently Asked Questions about this Article…
What criminal charges has Eddy Groves faced in relation to ABC Learning?
Eddy Groves pleaded not guilty to a criminal charge that he breached his duties as a director of ABC Learning. ASIC says the charge relates to his approval of payments connected to a January 2008 transaction — highlighted by an email approving a deposit just over $3 million — and alleges he failed to act in good faith and was dishonest.
Who is Martin Kemp and what charges does he face in the ABC Learning case?
Martin Kemp was head of ABC Learning’s Australasian operations. ASIC has charged him with three breaches of the Corporations Act, alleging he used his position to dishonestly gain an advantage and failed to disclose the January 2008 transaction to the ABC board. He did not enter a plea at the first hearing.
What was the January 2008 transaction at the centre of the ASIC investigation?
The transaction involved Kemp purportedly selling three childcare centres, owned by companies he controlled, to ABC Learning. ABC paid a deposit of just over $3 million — about 75% of the purchase price — in January 2008, weeks before ABC’s broader troubles became public.
Why is a single email important in the prosecution against Groves and Kemp?
ASIC has zeroed in on an email from Kemp to Groves seeking approval to pay the deposit and an email back from Groves approving the payment. Prosecutors say that exchange is a significant basis for charging Groves; Groves’ defence says the email is ambiguous and his involvement was limited.
How material was the $3 million deposit compared with the causes of ABC Learning’s collapse?
The article says the $3 million transaction is minor in size compared with the larger deals and practices that may have contributed to ABC Learning’s collapse, but ASIC describes the charges as part of an ongoing investigation and possibly the first of many actions.
What defences have Groves and his legal team presented so far?
Groves’ counsel says Kemp proposed the deal while Groves was overseas, that Kemp oversaw finance and legal matters, and that Groves received nothing from the transaction — his only alleged involvement being an email. Defence lawyers also argue the email is ambiguous and want the prosecution resolved quickly.
What bail conditions and court dates were set for Groves and Kemp?
Groves and Kemp were granted bail with conditions including surrendering their passports to ASIC, effectively continuing Groves’ travel ban. The matter was listed to return to court on February 25.
What lessons should everyday investors take from the ASIC prosecution of ABC Learning directors?
The case highlights the importance of corporate governance and directors’ duties. ASIC’s action shows regulators can pursue past transactions if they allege breaches of the Corporations Act, so investors should consider governance, board oversight and transparency when assessing company risk — especially in firms with complex related-party deals.
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