REX: ASIC accuse Regional Express of director duties breach

Currently in administration, Regional Express (REX) is also being sued by ASIC (Australian Securities and Investment Commission) for behaviour that breached directors’ duties. We now know some more details through court document filings.

ASIC’s accusation of deceitful conduct

Executive chairman Lim Kim Hai is accused of drafting a misleading statement for the Australian Stock Exchange (ASX) in February 2023.

ASIC alleges that board members John Sharp (Deputy Chair), Lincoln Pan, and Sid Khotkar became aware of the company’s perilous finances on April 14. That’s the date chairman Lim sought a $10 million cash injection. However, the named directors failed to inform investors, breaching their director duties.

All the named directors have advised they will be defending the allegations made by ASIC.

Background to the deceitful conduct

REX entered voluntary administration in July after a failed attempt to run flights between major capital cities. The Australian federal government has supported the company’s continued operation on regional routes to the tune of AU$80 million. That’s despite ASIC Chair Joe Longo informing Treasurer Jim Chalmers and Assistant Treasurer Stephen Jones about the nature of its investigations.

The timeline for the voluntary administration

Below is a bit of a timeline of what happened when, from which the ASIC accusations arose:

• 28 Feb 2023 — Lim approves statement to ASX: ‘optimistic the Group will have positive operating profits for the full FY23 barring any further external shocks’
• 21 March 2023 — Lim gets year-to-date P&L figures for February 2023 stating operating loss of AU$46.2 million
• 14 April 2023 — Lim advises Pan, Khotcar and Sharp of request for AU$10 million from funder PAG
• early May 2023— Khotkar to Pan (both board appointments of PAG) that aircraft load factors were dropping
• ‘days later’ May, 2023 —Weekly Worm Report shows declining passenger revenue, Jan to April less than 2022
• 14 April 2023— Directors aware that Lim seeks AU$10 million cash injection
• 21 June 2023 — REX issues profit warning flagging AU$35 million loss for FY2023
• 30 July 2023 — REX goes into voluntary administration. Capital cities flight suspended. Regional operation continues
• November 2024 — Australian federal government announces AU$80 million funding to maintain REX regional routes

2PAXfly Takeout

This court case is one to watch. It will be conducted in the Supreme Court of New South Wales at a date to be set. Given its complexity, it will probably take a little time to schedule. 2025 may be hopeful.

The collapse of REX’s capital city flights is regrettable. They provided the possibility of a third competition to our domestic duopoly of Qantas Group and Virgin Australia.

Domestic airfares in Australia have increased significantly since Rex Airlines entered voluntary administration in July 2024. The Australian Competition and Consumer Commission (ACCC) reported that average airfares between major cities rose by 13% following Rex’s collapse.

Based on that figure, the argument for additional competition in the Australian domestic air travel market is undeniable.