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11 December, 2024

ASIC to sue REX over allegations of deceptive and misleading conduct

A Rex Airlines Boeing B737-85R plane, registration VH-MFM, landing at Sydney Kingsford-Smith Airport as flight ZL549 from the Gold Coast. In the foreground is the airport's security fence with a warning sign not to enter. This image was taken from near Kyeemagh Beach, Botany Bay on a cold and sunny afternoon on 27 June 2024.

Edited by Travel Weekly

ASIC will sue Rex Airlines with the watchdog alleging ‘deceptive and misleading conduct’ by four of the carrier’s directors.

ASIC alleges John Sharp, Lim Kim Hai, Lincoln Panand and Sid Khotkar failed to disclose crucial information about a profit downgrade in June 2023. The alleged omission of market-sensitive information is considered a serious breach of corporate governance.

ASIC Chair Joe Longo said the case alleges serious governance failures within the airline.

“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.

“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.”

Rex Airlines entered voluntary administration in July 2023.

UPDATED: REX staff stood down and payout delay likely, says administrator

ASIC will allege Rex released a misleading ASX announcement on 28 February 2023 stating Rex was ‘optimistic the Group will have positive operating profits for the full FY23 barring any further external shocks’. ASIC 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 20 June 2023 forecasting a $35 million operating loss for the financial year ending 30 June 2023.

ASIC will allege Mr Lim contravened his directors’ duties between 28 February 2023 and 20 June 2023 by drafting and approving the 28 February 2023 announcement and failing to take steps to prevent Rex from breaching continuous disclosure rules.

ASIC will also allege the other three directors became privy to financial information from 14 April 2023 which should have led them to take steps to ensure Rex updated the market in accordance with its continuous disclosure obligations prior to 20 June 2023.

Ernst & Young Australia, Rex’s administrators did not offer Travel Weekly a response to questions on the topic.

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