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Australia's corporate watchdog has accused collapsed airline Regional Express Holdings (Rex) of misleading and deceptive conduct, and seeks to ban four directors of the company from managing corporations over alleged contraventions of their duties.
The Australian Securities and Investments Commission (ASIC) contends that Rex, now under administration, released a misleading ASX announcement on 28 February 2023 by stating it 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 given it had incurred operating losses in the financial year to date, and had not prepared an FY23 financial forecast before issuing the announcement.
The regulator will also contend that Rex ex 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.
The company later announced a downgrade on 20 June 2023 forecasting a $35 million operating loss for FY23.
ASIC's allegations are detailed in legal proceedings that have commenced in the Supreme Court of NSW seeking declarations against Rex, as well as pecuniary penalties against executive chairman Lim Kim Hai and directors John Sharp AM, Lincoln Pan and Siddharth Khotkar.
"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," says ASIC chair Joe Longo.
"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."
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ASIC will allege that 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.
The watchdog 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.
"Continuous disclosure of market-sensitive information is fundamental to upholding the integrity of our public markets and supporting a fair and efficient financial system," Longo says.
"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."
ASIC seeks leave to commence the proceedings against Rex as it is in administration. While ASIC will seek a declaration of contravention against Rex, it will not seek pecuniary penalties against the company.
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