Dear friend, the first one is, indeed, very formal, and I would not use it at all, except for reaching a special stylistic effect. However, neither of the sentences is truly 'wrong', as far as I'm concerned. Also, there is no collective noun here - just irregular plural 'children' with an archaic ending '-en' and an intrusive root consonant '-r-'.
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Anonymousis it
Anonymous verbs of perception
(find, catch, discover, come upon) take only the -ing participle because the subject is discovered
while in the act