December 11th 2024.
The Australian financial watchdog is taking legal action against the now-defunct regional airline Rex and four of its directors, alleging that they made a false statement to the ASX. In a statement, ASIC accused Rex of engaging in misleading and deceptive behavior, as well as violating their obligations to disclose information to the public. Former executive chair Lim Kim Hai and directors John Sharp, Lincoln Pan, and Siddharth Khotkar are also facing accusations of breaching their duties as directors.
This lawsuit comes after Rex entered voluntary administration on July 30, 2021. While ASIC is seeking a declaration of wrongdoing, they will not be pursuing any financial penalties against the company, as it is already in administration. However, they are seeking financial penalties against the four named directors.
The allegation against Rex revolves around a statement they made on February 28, 2023, claiming that they were optimistic about their financial performance for the full fiscal year, barring any external shocks. ASIC alleges that this statement was made without a reasonable basis, as Rex had already incurred operating losses in the current financial year and did not have a financial forecast for the following year.
Furthermore, ASIC claims that Rex breached their continuous disclosure obligations by not disclosing a significant downgrade, despite being aware of it when they made the February announcement. This downgrade was eventually announced on June 20, 2023, forecasting a $35 million operating loss for the financial year.
ASIC Chair Joe Longo stated that this case highlights serious governance failures at Rex and that the directors had a responsibility to ensure the company complied with the law. He also emphasized the importance of continuous disclosure in upholding the integrity of public markets.
The lawsuit specifically accuses Lim of contravening his duties as a director by drafting and approving the misleading February announcement and not taking steps to prevent Rex from breaching their disclosure obligations. The other three directors, according to ASIC, had access to financial information that should have prompted them to ensure that Rex updated the market accordingly.
As Rex is currently in administration, ASIC had to seek permission to bring this legal action. The administrators have declined to comment on the matter, stating that it is now before the courts. They have also clarified that they are not involved in the lawsuit. The directors named in the legal action have not yet issued a statement.
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