No Recourse to Public Funds while HO is processing ILR application

Dear Members,

I've run into the following situation and need some insight if anyone has any clue what's happening:
I'm an Israeli national who have been in the UK for over 10 years, married to a German national who attained her ILR last year. My 5 year residence card expired based on my current marriage expired on the 3rd of January, 2019. I have sent an ILR application soon after, about two weeks ago. I was sent the Biometric letter from the HO and did it straight away. I then received a letter from the HO dated 6/2/19 titled 'certificate of application' to let me know that they are processing my ILR application and my right for taking employment in the meantime. There is no mentioning of recourse to public funds.

My wife and I have three kids, and have been receiving 30 hours free childcare scheme. I receive a request from GOV.uk to reconfirm our eligibility every three months. I received such a request two days ago and reconfirmed that there were no changes in our circumstances what-so-ever. Today I received a response from GOV.uk that we are refused the 30 hours free childcare due to, and I quote: "from the evidence we hold we have decided that you don't have recourse to public funds".

My question is as follows:
1. Did they refuse my childcare reconfirmation on the basis of the expiration of my previous residency?
2. Would they be able to see that I have applied already for ILR and that is in the pipeline?
3. If so would that entitle me to receive child benefits?
4. Or could it be that they actually know exactly what my immigration situation is but can see that for some reason the HO has refused my ILR which I have not yet found out about?

Any thoughts to clarify this confusion and how I can see to its ending would be most appreciated.

Thanks a lot. Shlomi.