ASIC has announced it’s suing Rex for “misleading and deceptive conduct”.
The Australian Securities and Investments Commission claims the airline failed to disclose its financial troubles before it entered voluntary administration in July.
ASIC has launched legal action against Rex and several of its directors — who it alleges unreasonably and unlawfully exaggerated Rex’s forecasted profits.
Last month, the Federal Government announced an $80 million bailout for Rex to continue operating its regional routes.
Background
Rex is Australia’s only independent commercial domestic airline. It began operating in 2002.
The airline struggled to recover from the pandemic and faced a major reshuffle of its board of directors earlier this year. Rex entered voluntary administration in July, laying off more than 600 workers.
Voluntary administration means a company can’t afford to pay its debts, and has appointed an independent body to take control of its operations.
ASIC
Before its shares were suspended from trading in July, Rex was a publicly listed company on the Australian Securities Exchange (ASX).
Companies listed on the ASX are subject to certain market regulations and obligations to investors, such as publishing regular financial updates.
These requirements are enforced by ASIC — Australia’s integrated corporate, markets, financial services and consumer credit regulator.
Lawsuit
ASIC has filed a case in the NSW Supreme Court, accusing Rex of “misleading and deceptive conduct” and breaching its ASX obligations.
The lawsuit centres around a February 2023 ASX announcement from Rex, which said it was “optimistic the Group will have positive operating profits” for 2022/23.
The airline went on to report a $35 million loss for that financial year.
ASIC alleges Rex was aware it was “unlikely to achieve” a profit, and “did not have a reasonable basis” for its claim.
The lawsuit also named four Rex directors who worked at the airline at the time of the ASX announcement, including former Executive Chair, Lim Kim Hai.
ASIC has accused the directors of “serious governance failures” and breaching their duties.
“They failed to take steps to ensure the market had accurate information about the company’s financial performance,” ASIC chair Joe Longo said.
“We will seek to hold [Rex] to account.”
Penalties
ASIC is seeking financial penalties and legal disqualifications against the four directors from managing corporations. It is not pursuing financial penalties against Rex Airlines.
Financial services firm Ernst and Young (EY) took over as administrator in July.
An EY spokesperson told TDA “it would be inappropriate” for Rex or the administrators to comment on the case, as it’s before the courts.
Longo said “continuous disclosure of market-sensitive information,” is fundamental to “supporting a fair and efficient financial system”.
