The Australian Securities and Investments commission yesterday launched a shock Federal Court bid to freeze the assets of failed ABC Learning Centres founder Eddy Groves and a key former associate.

It is understood that ASIC interviewed both Groves and former ABC finance boss James Black last year over potential breaches of the continuous disclosure laws, as well as allegations of misleading and deceptive conduct. In November 2008, ABC slid into administration amidst debts of more than $1.6 billion. Earlier that year, ABC announced a $437 million loss and revealed to investors that it had been incorrectly claiming up-front payments from developers as ‘revenue’. This had the effect of artificially inflating ABC’s reported profits.

While no charges have as yet been laid against Groves, or any other executive of ABC, ASIC is seeking to freeze property held by Groves and his wife, Viryan Collins-Rubie. Groves married Collins-Rubie in January this year, after divorcing Le Neve Groves (the co-managing director of ABC) in 2008. Collins-Rubie was previously an employee of ABC, before becoming CEO of another childcare centre, Childcare Providers (Childcare Providers would later be acquired by interests associated with Eddy Groves’ brother-in-law).

As part of its freezing action, ASIC is seeking to prevent Groves and Collins-Rubie from selling, gifting or removing any property from Australia, and is attempting to confiscate Groves’ passport.

Indicating that ASIC’s investigations are extending well beyond Groves, ASIC is also seeking to freeze the assets of Frank Zullo.

The implications of the Zullo freeze are wide-reaching. Zullo, who is the husband of Eddy Groves’ sister, had an extensive commercial relationship with ABC. Between 2003 and 2007, ABC paid Queensland Maintenance Services (of which, Zullo was the sole director) more than $110 million for maintenance and capital works. The work was never publicly tendered by ABC and likely exceeded ABC’s actual profitability over that period.

Groves and Zullo also maintained various other joint interests, with QMS once listing its principal place of business at an apartment owned by Groves, and the profits earned by QMS flowing to another company called Gelding, of which Groves was a beneficial shareholder until 2003. Zullo would later provide a $10 million loan to Childcare Providers, the company run by Groves’ then lover, Viryan Collins-Rubie in 2007, before acquiring Childcare Providers.

It is possible that in seeking to freeze the assets of Zullo, ASIC may allege that the payments made by ABC to QMS were untoward.

Following ABC’s collapse last year, the Federal Government was forced to inject more than $100 million into the company to ensure that its child-care services could continue. ABC’s administrators eventually closed 55 centres, and sold a further 262 centres largely to not-for-profit operators.

In addition to the possible ASIC action, Groves is also fighting a $64.2 million legal claim against his former wife Le Neve, who alleged that her signature had been forged on margin-lending guarantee documents.

While Groves had his entire stake in ABC Learning sold last March by his lender, Citigroup, he is still believed to maintain various other business interests, including ownership of the $3.95 million Distinctive Homes Dome in Adelaide, a 4.1 percent stake in investment bank Austock, various property interests and a stake in internet sports-betting site, Sports Acumen. ASIC is understood to have proposed that Groves and Collins-Rubie be entitled to living expenses of $520,000 annually as part of the freezing application.