The Australian Securities and Investments Commission (ASIC) has taken beleaguered operator Regional Express (Rex) to court, amid allegations of “serious governance failures”, including a “misleading” and inaccurate profit forecast in 2023.
The commission is also suing former executive chair Lim Kim Hai, as well as three other directors including deputy chair John Sharp for breach of their duties.
It is seeking financial penalties and disqualification orders for the four directors, but will only seek a declaration of contravention against Rex, as the airline is in administration.
The allegations stem from Rex’s earnings forecast in February 2023, where it stated it was “optimistic the group will have positive operating profits…barring any further external shocks” for the financial year ended 30 June 2023.
The ASIC alleges the airline “did not have a reasonable basis” for the claim, as it had incurred operating losses in the previous year, and that it did not prepare a financial forecast before issuing the announcement.
“ASIC will contend Rex breached its continuous disclosure obligations by failing to disclose a material downgrade, despite being aware…that the company was unlikely to achieve an operating profit,” the commission adds.
The commission says Lim had allegedly “contravened” his duties as director by drafting and approving the the February announcement.
As for the three other directors named in the lawsuit, they are alleged to have known about Rex’s financial situation from April 2023, “which should have led them to take steps to ensure Rex updated the market in accordance with its continuous disclosure obligations”.
Says ASIC chair Joe Longo: “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.”
The lawsuit is the latest development in Rex’s ongoing financial woes – the airline abruptly suspended domestic jet operations in July this year, amid mounting challenges. The airline is still operating its Saab 340 regional flights after the Australian government agreed to guarantee the services.
