The first National Disability Insurance Scheme (NDIS) provider to list on the ASX faces an existential crisis within a year of its initial public offering (IPO), as regulators contemplate a ban on Freedom Care Group (ASX: FCG) from providing or managing support for people with disabilities.

The group has received two notices from the NDIS Quality and Safeguards Commission, advising that its status as a registered NDIS provider should be revoked, and of a preliminary view that it may be appropriate to place a banning order on the company providing disability support, directly or indirectly. 

Investors have bolted for the exits with shares in Freedom Care Group plunging 42.3https://www.businessnewsaustralia.com/1 per cent today to 7.5 cents per share (cps).

This means the Sydney-based company, which as of the end of September only had sufficient cash to fund operations through to around mid-February next year, has lost 62 per cent of its value since listing in late November 2023 when it had a prospectus market capitalisation of $2https://www.businessnewsaustralia.com/1.66 million.

In the group’s FY24 annual report released at the end of September, CEO Jamal Sabsabi emphasised Freedom Care Group had brought to account a host of one-off expenditures relating to the IPO, while chairman Zoran Grujic signalled an expansion strategy to grow in Greater Sydney, Melbourne, Brisbane and Perth via acquisitions.

Revenue was up for the year by 38.8 per cent at $32.8 million. Profit may have been down by two-thirds at $89https://www.businessnewsaustralia.com/1,000, but likely would have been much higher if not for some $700,000 in IPO-related costs.

Total services revenue then grew quarter-on-quarter by https://www.businessnewsaustralia.com/1https://www.businessnewsaustralia.com/1.5 per cent in the three months to 30 September while the company was in the process of expanding into the Brisbane market and looking to increase the number of houses it manages on the NSW Central Coast.

However, net cash outflows of $https://www.businessnewsaustralia.com/1.46 million set back its total cash balance to $2.4 million going into the final leg of the calendar year. 

At the time, the company claimed that quarterly cash receipts of $8.7 million were below expectations “as a NDIS audit initiated in mid-September 2024 momentarily checked revenue growth”.

“The company estimates that the latter audit likely resulted in a decrease of over $800,000 in cash receipts. We expect to recover this figure in the current quarter,” the group stated at the time.

In the annual report, the chairman noted 95 per cent of Freedom Care’s revenue was derived from the Australian Government.

“This income stream, supported by a low capital intensity business model, underscores the robustness of our financial foundation,” he said.

But this is only the case if the government keeps paying the bills, and that outlook has been thrown into jeopardy by the Commission advising it “holds information which has led to it reaching its preliminary view that FCGPL has engaged in conduct in contravention of the NDIS Code of Conduct and the NDIS Act”.

“The Commission has advised that a final decision to revoke the NDIS registration of FCGPL and/or to make a banning order will not be made until FCGPL has had an opportunity to make submissions to the Commission. FCGPL’s submissions are required by no later than 5.00pm (AEST) on https://www.businessnewsaustralia.com/1 December 2024,” the group reported to the ASX today.

“The company emphasises that these notices reflect only the Commission’s preliminary views, and it remains committed to providing a comprehensive response and cooperating fully with any additional inquiries.

“FCGPL has engaged a litigation firm and barrister to respond to the notices and intends to vigorously defend itself against any potential revocation of its NDIS registration and/or banning order.”

The notices relate specifically to the ASX-listed entity’s wholly owned subsidiary Freedom Care Group Pty Ltd (FCGPL), which according to the group represents approximately 80 per cent of consolidated revenue.