The Pandora’s Box that was ABC Learning Centres this week is being exposed to the financial world as the company’s administrator, Ferrier Hodgson, conducts a Federal Court examination of key ABC figures (including ABC founder and former CEO Eddy Groves). The purpose of the hearing is to determine whether ABC may have continued to trade while it was insolvent and whether ABC directors breached any of their fiduciary duties.

While there is also the possibility that other civil or criminal infractions were committed by ABC directors and executives, all evidence given to the hearing cannot be directly used for future proceedings by ASIC.

On Monday, former interim CFO John Gadsby told the court that Groves had altered the company’s December 2008 financials to increase fees from parents by $44 million as well as payments from developers of $44 million. The changes were allegedly approved by ABC audit committee boss David Ryan. Ryan continues to serve as the chairman of Transurban and a director of Lend Lease.

Despite Groves’ best endeavours, his alleged book cooking didn’t keep the wolves at bay for long — shortly after ABC released its 2008 results (in early 2009) , complete with disclosure of developer payments, investors quickly realised that the childcare behemoth was little more than a debt-riddled house of cards, and the empire quickly toppled. Within weeks, Groves had been “margin called” out of his entire stake in the company — which was once valued at almost $300 million. (It is not without irony that Groves at the time accused short-sellers of causing ABC’s downfall, while at the same time, allegedly adding a delicious marinade to ABC’s well-sautéed financial statements).

Other allegations reported by Liam Walsh in the Courier-Mail included ABC urgently siphoning funds from its UK-based accounts to pay Australian creditors and a controversial payment of $22 million to Queensland Maintenance Services. QMS, which is owned by Groves’ brother-in-law, Frank Zullo, had received more than $70 million from ABC in 2007 for “untendered” maintenance and construction work. The $22 million that was allegedly paid to QMS in July 2008 was in direct contravention of an agreement between ABC and its lenders, which limited payment to QMS to $5.3 million per month.

The payment to Zullo is particular concern given the close business relationship between Groves and his brother-in-law. For instance, Groves and Zullo had undertaken various property ventures together, while QMS had at one time listed its principal place of business at Groves’ Brisbane apartment. Further, profits earned by QMS had until 2003 flowed to a company that counted Groves as a beneficial shareholder and director (Groves later sold his stake in that company to another former director of ABC Learning). Zullo would also give a $10 million loan to a company called Childcare Providers — the CEO of Childcare Providers was a woman called Viryan Collins-Rubie, who coincidentally is now married to Groves.

Eddy Groves gives evidence at the hearing today, after allegations were aired yesterday that the former BRW young rich list member spied on his ex-wife (and ABC director) Le Neve and told her to “back off” when she investigated issues at ABC’s American operations. Le Neve Groves would later take out an apprehended violence order against Eddy in July 2008 as their relationship, and ABC’s share price, continued to deteriorate.

The full story of ABC Learning Centres is featured in Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed.