ASIC has launched legal proceedings against Regional Express Holdings Limited (Rex) in the Supreme Court of NSW, alleging misleading and deceptive conduct and breaches of continuous disclosure obligations.
The case centres on a February 2023 ASX announcement, where Rex stated it was “optimistic” about achieving positive operating profits for the full financial year. ASIC contends Rex lacked a reasonable basis for this claim, citing operating losses to date and the absence of a financial forecast for FY23.
ASIC alleges Rex breached continuous disclosure rules by failing to reveal a material downgrade until June 2023, when it forecast a $35 million operating loss for FY23.
Former executive chair Lim Kim Hai and directors the Hon John Sharp AM, Lincoln Pan and Siddharth Khotkar are also accused of contravening directors’ duties by not ensuring the market was updated sooner.
“Our case will allege serious governance failures at Rex,” ASIC Chair Joe Longo said.
“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.
“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 seeks declarations, penalties and disqualification orders against the directors but will not pursue pecuniary penalties against Rex, which is in administration.
Given the airline faces no fines, it’s doubtful the lawsuit will directly impact the carrier’s operations or travellers. But it could impact confidence in the carrier.
“Continuous disclosure of market-sensitive information is fundamental to upholding the integrity of our public markets and supporting a fair and efficient financial system,” Longo said.
“Directors of listed entities play a critical role in ensuring companies comply with their continuous disclosure obligations. Failing to take reasonable steps to ensure a company is compliant is not acceptable.”
In November, the Federal Government threw beleaguered carrier a lifeline to the tune of $80 million, while a recent analysis from the Australian Airports Association (AAA) laid bare just how deeply the airline’s potential collapse could slice into Australia’s aviation sector and regional communities.
TWU: Protect Rex
The Transport Workers’ Union (TWU), meanwhile, is urging the government to take an equity stake in Rex to protect critical regional routes and jobs amid the uncertainty around the airline.
The union welcomed the government’s earlier support package and early access to entitlements for redundant workers but says more intervention is needed for long-term stability.
Backing its call, a YouGov poll revealed 71% of Australians support Government action to maintain Rex’s regional services, with 75% favouring an equity stake in struggling companies. The TWU is also pushing for a Safe and Secure Skies Commission to set industry standards.
“Today’s action from ASIC casts further doubt on governance standards at Rex,” TWU National Secretary Michael Kaine said.
“Though legal matters will take their course, it is crystal clear we cannot let Rex fail, and the Federal Government must step in with an equity stake to get this airline back to where the community needs it to be.”
“There is overwhelming public support for the Federal Government to step in and intervene with decisive action to save hundreds of aviation jobs, as well as critical regional Australian business, tourism, healthcare and community services
“The Federal Government’s $80 million lifeline to Rex was a sigh of relief for workers who had been in limbo waiting for their entitlements, but those still with jobs are waiting for the axe to fall on them next.
“Meanwhile there is deep uncertainty for regional Australian travellers and businesses about whether these critical routes will remain operational. The Federal Government must keep Rex flying.”
The carrier entered voluntary administration in July, grounding all B737 flights from major airports.
