Documents show Oak Tree, which allowed children of mainly Asian ethnicity to be educated in their own language, was first granted a licence in 2015, but came to the attention of officials soon afterwards because of financial irregularities.
The company was then switched to "provisional" licences while it worked to fix its compliance issues, but continued to be the subject of complaints.
After an investigation, the ministry said the company had systemic issues with licensing criteria, regulations and funding rules.
This included grandparents claiming funding for children who lived with them - which was not allowed - and educators who did not meet curriculum requirements. There were never safety concerns.
"Early childhood education providers are required to meet our high standards," the ministry's deputy secretary Katrina Casey said. "That's why we have taken firm action on complaints we have received about Oak Tree."
But Oak Tree's owner, Anna Zhang, said the ministry shut her down only because officials "were racist" and didn't want Chinese or Indians running early childhood education.
"Because I'm Chinese they don't like me," she said. "They just want to get rid of all the Chinese and Indian companies."
Zhang showed the Herald legal documents - which alleged the ministry had misread cultural cues and used inexperienced translators when doing home visits, leading to incorrect assumptions about the education occurring.
"Oak Tree submits that educators from another culture and having limited English are more anxious when a stranger visits their home," it said. "Their experience of government back in their countries of origin . . . is one of great unilateral and arbitrary power". She claimed Oak Tree was not given details of the complaints nor time to respond. Zhang wanted to take the Government to court, but could not afford it despite selling her house, she said.
But Casey said Oak Tree's licences were cancelled because the services it was providing were not up to standard. The children in its care were not receiving the quality early childhood education they deserved.
"We reject any suggestion that race or cultural misunderstanding played any role in our decision. This action was not taken lightly and followed a thorough assessment process."
In total there were 15 complaints about Oak Tree. The ministry said although the company did not owe it any money, it was still considering whether further action was required based on the findings of its investigation.
It would not confirm if the case had been referred to the Serious Fraud Office.
Oak Tree is one of a growing number of home-based early education companies, an industry undergoing sharp growth, particularly where qualified carers are not required.
As of 2015, there were 25,000 children in the "standard" stream of home-based care, where their carers - such as nannies, au pairs and grandparents - can be paid up to $9 per child despite lacking a qualification.
What is home-based ECE?
• Home-based early childhood education involves small groups of children - a maximum of four - learning at home with an educator.
•Up to 20 educators, and 80 children, come under the supervision of a co-ordinator (a qualified ECE teacher) who must check in once a week and visit once a month.
•There are two types of home-based ECE: quality and standard.
•Quality means all educators must have at least a Level 3 qualification.
Standard means no qualification is required.
•Grandparents are allowed to become educators but cannot live at the same address as those they care for.
•Any home-based educator has to deliver the Te Whariki early-learning curriculum, have a first-aid certificate and be police-vetted. Their house has to meet health and safety standards.
•Home-based care is funded by the Government at a maximum of $9.27 an hour per child.
