Frank Zullo, who ran a renovation and maintenance company that worked for childcare giant ABC Learning Centres.
Frank Zullo, who ran a renovation and maintenance company that worked for childcare giant ABC Learning Centres.

Tribunal targets $35m childcare mystery

TEN years after the collapse of ABC Learning Centres, a tribunal has called out the mystery surrounding $35 million in payments from a maintenance company to the former Brisbane-based childcare giant.

The maintenance company was run by businessman Frank Zullo, the brother-in-law of fallen childcare mogul Eddy Groves.

"There is some undisclosed purpose for the invoices and payments," Administrative Appeals Tribunal deputy president Ian Molloy found.

The AAT comments come in a ruling handed down about a tax dispute involving Mr Zullo's former company Queensland Maintenance Services.

QMS was the maintenance and renovation outfit that worked for ABC. The relationship was controversial because ABC gave QMS large amounts of untendered work; $74 million in fiscal 2006 alone.

ABC, which oversaw 2300 centres, collapsed in 2008 amid questions about its accounts.

QMS later ran into trouble with the Australian Taxation Office in 2011 taking issue with previous expense claims. A Federal Court backed the ATO, but in 2012 also ruled that QMS's liquidators Peter Lucas and Glenn Shannon could not resolve any tax action without going back to legal bodies.

So the AAT reviewed the assessment, hearing that QMS for the financial year 2007 had declared $139 million in gross income and a taxable income of $7.7 million. That included QMS claiming a deduction for $35.36 million in "renovation compensation expenses" paid to ABC.

According to the ruling, Mr Zullo said the charges in general related to losses sustained because of disruption or delays in renovation work. "Mr Zullo said he expected that if QMS refused to make the renovation compensation payments, ABC would engage a competitor or competitors to perform the work," the ruling said.

But Mr Molloy said he was not satisfied that a refusal to pay the charges would put QMS's future work at risk. "More to the point, I am not satisfied the Mr Zullo believed that, or that it was the reason for payment of the renovation compensation charges," he said. "The notion that the renovation compensation invoices were paid through commercial expediency lacks commercial reality."

"There is some undisclosed purpose for the invoices and payments, especially where it does not appear that any renovation compensation charges were sought or paid in the 2008 income year."

Still, Mr Molloy decided to water down a 75 per cent penalty affixed to the initial tax assessment, to 50 per cent. That was because he thought QMS had not shown an "intentional disregard for taxation law so as to attract the 75 per cent penalty".

QMS's actions could "rightly be regarded as recklessness", he found.

QMS is yet to pay a dividend to creditors although the liquidators are still examining matters.

ABC's failure destroyed shareholdings once valued at $3 billion. Its chief financial officer James Black in 2015 pleaded guilty to providing $46 million worth of misleading information to auditors.

The court in that case heard the false information amounted to a way for another company associated with ABC to be able to receive money from the childcare giant, and then pay it back to ABC.

Black had signed false engagement letters which meant the associated company got $46 million from ABC, and if these payments had not been made or justifiable, the accounting books of ABC "would have looked very different", prosecutors said then.

No one else was successfully prosecuted over the ABC collapse.