Your school probably wasn't doing anything wrong. The Copyright Licensing Agency sells licenses to schools so they can do that sort of thing. They monitor what gets copied and sort out these hard-to-collect payments on behalf of authors.
I agree with you about giving primary school kids ereaders, it's not going to be cost effective unless they're reading a lot of books that are out of copyright. They could get broken deliberately or break down, and they're not as accessible as paper, especially when you forget to charge them. And of course they're nowhere near as visually appealing as a shiny new book illustrated in full colour.