2 weeks Ago By Varun Godinho
The Australian Securities and Investments Commission (ASIC) has decided to sue Regional Express, better known as Rex, over claims that it engaged in misleading and deceptive conduct and continuously contravened disclosure obligations. Rex is Australia’s third-largest airline and entered voluntary administration in July this year. While it ceased operations on capital city routes, the airline has continued to operate regional services.
ASIC has accused four directors – former chairman Lim Kim Hai, former Howard government minister John Sharp and PAG Asia Capital executives Lincoln Pan and Siddharth Khotkar – of misleading the market about the airline’s finances. The corporate regulator says that Rex released a misleading ASX announcement on 28 February 2023 stating that it was “optimistic the Group will have positive operating profits for the full FY23 barring any further external shocks.” However, ASIC contends that Rex did not have a reasonable basis for that claim for a number of reasons, including because it had incurred operating losses in the financial year to date, and it did not prepare a financial forecast for FY23 before issuing the announcement.
ASIC adds that Rex also failed to disclose a material downgrade, despite being aware when it issued the February ASX announcement that the company was unlikely to achieve an operating profit. Rex subsequently announced a downgrade on 20 June 2023 forecasting a $35 million operating loss for the financial year ending 30 June 2023. “Our case will allege serious governance failures at Rex.
Rex’s directors had a responsibility to take reasonable steps to ensure the company complied with the law and we will seek to hold them to account,” said ASIC Chair Joe Longo. “We will allege four of Rex’s directors breached their duties because they failed to take steps to ensure the market had accurate information about the company’s financial performance.” ASIC has alleged that Lim contravened his directors’ duties last year by drafting and approving earnings guidance and failing to take steps to prevent Rex from breaching continuous disclosure rules.
The regulator also alleges the other three directors were given financial information on April 14 last year “which should have led them to take steps to ensure Rex updated the market in accordance with its continuous disclosure obligations” before the eventual downgrade two months later. The regulator said that it would seek declarations, pecuniary penalties and disqualification orders against Lim, Sharp, Pan and Khotkar..
