Australia’s financial watchdog is suing collapsed regional airline Rex and four of its directors over an allegedly misleading ASX statement.
ASIC in a release accused Rex of engaging in “misleading and deceptive conduct and contraventions of continuous disclosure obligations”.
Rex’s former executive chair Lim Kim Hai, along with directors John Sharp, Lincoln Pan, and Siddharth Khotkar, are also accused of contravening their duties as directors.
Rex entered voluntary administration on July 30 this year, and so ASIC said while it would seek a declaration of contravention should its case prevail in court, it will not seek a financial penalty.
However, ASIC will pursue potential financial penalties against the four directors named in the suit.
ASIC will allege Rex released a misleading ASX announcement on February 28, 2023, stating Rex was “optimistic the Group will have positive operating profits for the full FY23 barring any further external shocks”.
The watchdog will allege 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 will contend Rex breached its continuous disclosure obligations by failing 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 June 20, 2023, forecasting a $35 million operating loss for the financial year ending June 20, 2023.
“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.”
He said the directors failed to ensure the market had accurate information about the company’s financial performance.
ASIC will allege Lim contravened his directors’ duties between by drafting and approving the February 28, 2023, announcement and failing to take steps to prevent Rex from breaching continuous disclosure rules.
The other three directors are accused of having access to financial information from April 14, 2023, which ASIC claims should have led them to take steps to ensure Rex updated the market in accordance with its continuous disclosure obligations.
“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.
ASIC has to seek permission in order to bring the suit against Rex as it is in administration.
In a statement, the administrators said it would be inappropriate to comment as the matter was before the courts.
The administrators are not implicated in the lawsuit.
Comment has been sought from the directors named in the legal action.
