REX AIRLINES: ASIC alleges misleading and deceptive conduct by airline

The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against Regional Express (REX), the beleaguered airline in administration, alleging that it deceived the market.

Misleading announcements

The controversy centres on an Australian Stock Exchange (ASX) announcement made by REX in February 2023. The airline declared optimism about achieving operating profits for the full year, contingent on no further external disruptions. This optimistic outlook was starkly contradicted by a subsequent announcement on June 20, 2023, forecasting a substantial operating loss of $35 million for the fiscal year ending June 30, 2023.

Allegations of governance lapses

The lawsuit also implicates several former high-ranking REX officials, including ex-executive chair Lim Kim Hai and former National Party member and transport minister John Sharp, in the misleading and deceptive conduct.

ASIC contends that these individuals, alongside Lincoln Pan and Siddharth Khotkar, violated their directors’ duties by failing to ensure accurate financial disclosures.

ASIC’s view on misleading and deceptive conduct

ASIC’s chair Joe Longo emphasised the allegations’ gravity:

‘Our case will allege serious governance failures at Rex. 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.

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.’

Joe Longo, ASIC Chair

Longo emphasised the critical role of directors in maintaining compliance with continuous disclosure obligations, asserting that non-compliance is unacceptable.

Legal Consequences

ASIC plans to pursue declarations, monetary penalties, and disqualification orders against Lim, Sharp, Pan, and Khotkar as part of the legal action for misleading and deceptive conduct.

While ASIC will seek a declaration of contravention against REX, it will not seek pecuniary penalties against the company.

2PAXfly Takeout

The demise of REX Airlines‘ interstate flying ambitions has been unfortunate. Previous reporting suggests some misbehaviour at the board level, although nothing necessarily criminal. This action of ASIC suggests that the board activities and company reporting may have breached the law, and that’s serious.

While the airline’s regional services continue with government funding support, the bid to make REX a full-on domestic player in Australian aviation has failed, to the detriment of competition and the cost of airfares to the public.

Businesses unrave for a reason, and this action by ASIC might reveal more of the puzzle.

Unfortunately, the loss is not just to the shareholders of REX but to the flying public.