The Australian Securities and Investments Commission (ASIC) has commenced legal proceedings in the Supreme Court of New South Wales, accusing Rex Airlines of engaging in “misleading and deceptive conduct”, as well as failing to meet disclosure requirements.
In a press release published on December 11, 2024, Joe Longo, ASIC Chair, said that four board director members of Rex Airlines, Lim Kim Hai, John Sharp AM, Lincoln Pan, and Siddharth Khotkar, “failed to take steps to ensure the market had accurate information about the company’s financial performance.”
ASIC also alleged that Rex made a misleading announcement on the Australian Securities Exchange (ASX) on February 28, 2023, claiming that the company was “optimistic the Group will have positive operating profits for the full fiscal year of 2023 barring any further external shocks.”
However, ASIC is arguing that Rex did not have a “reasonable basis for that claim” 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.”
The regulator also alleges that Rex “breached its continuous 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.”
The airline later announced a downgrade on June 20, 2023, predicting a $35 million operating loss for the financial year ending June 30, 2024.
“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,” Longo said.
The regulator will claim that Lim Kim Hai contravened his directors’ duties from February 28, 2023, to June 28, 2023, by drafting and approving the ASX announcement and not taking steps to stop Rex from breaching disclosure rules.
Additionally, ASIC alleges that, starting in April 2023, the other three directors received financial information which should have led them to take steps to ensure Rex “updated the market in accordance with its continuous disclosure obligations.”
“Directors of listed entities play a critical role in ensuring companies comply with their continuous disclosure obligations,” Longo said. “Failing to take reasonable steps to ensure a company is compliant is not acceptable.”
ASIC said it will “seek a declaration of contravention against Rex” but will not pursue financial penalties against the company. However, the regulator said it will seek declarations, pecuniary penalties and disqualification orders against the four directors.