G8 Education, which was rocked by the arrest of an ex-worker in 2025, blamed economic and social conditions, including lower birth rates and parents struggling with cost-of-living pressures.
That turned so-called average centres into low performers, forcing the company to confront the challenge of keeping the for-profit business on a sustainable path.
Some 36,000 children across Australia use G8 Education's 395 childcare and early learning centres each week, under well-known brand names such as Headstart, Creative Garden, Jellybeans, Kool Kids, World of Learning and Kindy Patch Kids.
Parents using the 40 centres slated for closure will need to move their children to a nearby G8 facility as staff are redeployed "where possible".
Parenting advocate Georgie Dent described the closures as deeply concerning.
"For families, the impact is immediate and stressful," she told AAP.
"For some, there may be no realistic option nearby.
"What this exposes is a system under real strain."
Federal Education Minister Jason Clare said the closures were a commercial decision.
"It is very important the company work with the families involved and facilitate children finding alternative arrangements," he said.
Former G8 worker Joshua Dale Brown was charged with more than 70 sex offences against eight children aged under two at some of its centres in Victoria.
The alleged abuse happened at five G8 centres, and three other centres not owned by G8, between April 2022 and January 2023.
United Workers Union director of early childhood education Carolyn Smith said G8 had a significant number of centres outside major cities.
"Where closures are occurring in areas that are already childcare deserts, we are calling on the federal government to take notice and act to ensure families are not left without options," she said.
G8, which has 8800 child educators, was forced to defend itself from repeated challenges about its ongoing viability at its annual general meeting of shareholders in Brisbane.
One shareholder accused the group of being a "dunce", saying investors were being eviscerated by its share market performance.
On Wednesday, the stock collapsed by almost 65 per cent to a near 16-and-a-half-year low of 15.5 cents, before retracing to 16.7 cents in afternoon trading.
A year ago, it was trading around $1.27.
Chief executive Pejman Okhovat said 2025 was a challenging year for the group and childcare sector more broadly, given allegations of abuse linked to other operators.
"These incidents impacted family confidence and trust across Australia," he told shareholders.
G8's year-to-date occupancy rate across its centres was 56.1 per cent, down 7.9 per cent on the previous period.
The sector is also under heightened regulatory scrutiny.
In July, G8 rolled out CCTV across its facilities and it continues to work with the federal government to ensure safeguards are in place.
"Every parent should have the confidence that when their child is put into early learning, they are safe," Prime Minister Anthony Albanese said.
At the end of 2025, 95 per cent of G8's centres met or exceeded national quality standards, to be four per cent above sector average.
Mr Okhovat has repeatedly apologised since the historical abuse allegations came to light, telling a Senate committee he was horrified.
G8 described the centre closures as a suspension and said it would work on lease surrender, divestment or other alternatives in coming months.
The company made a net loss of $303.3 million in 2025, versus a profit of $67.7 million in the prior year.
The board on Wednesday dropped a resolution to grant performance rights - or equity incentives - to Mr Okhovat while thanking him for steering G8 through a "very difficult period".
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