ASIC to sue Rex Airlines alleging company misled the market about its profitability

The corporate regulator ASIC is suing Rex Airlines, alleging the company and four of its directors engaged in “deceptive and misleading conduct” over its profitability.

ASIC alleges Rex, along with John Sharp, Lim Kim Hai, Lincoln Pan and Sid Khotkar, failed to meet its disclosure obligations, including as company directors, by not sharing market sensitive information that forecast a $35 million profit downgrade in June 2023 in a timely manner.

The regulator alleges that Rex told the Australian Securities Exchange in February 2023 that the company would have “positive operating profits” for the 2023 financial year, but “did not have a reasonable basis for that claim”, given it had been incurring operating losses.

ASIC alleges that Rex breached its continuous disclosure obligations by failing to disclose that its financial position had been downgraded, “despite being aware when it issued the February ASX announcement that the company was unlikely to achieve an operating profit”.

“Our case will allege serious governance failures at Rex”, ASIC chair Joe Longo said.

“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.”

Rex Airlines entered voluntary administration in July this year, after a failed attempt to offer flights between major capital cities, serviced by Boeing 737 jets. Rex’s regional services continue to operate.

In a statement, the company’s administrators from EY said it would be inappropriate to comment as the matter is before the courts.

ASIC is only seeking a “declaration of contravention” against Rex, not a financial penalty against the company.

However, the four directors — Mr Lim, Mr Sharp, Mr Pan and Mr Khotkar — could be fined if they are found guilty of the contraventions.

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