Investors File Lawsuit Against Rex Airlines for Deceptive Practices
Australia’s corporation regulator ASIC alleged that Rex failed to disclose a profitability downgrade in February 2023 despite being aware of it.
Rex Airlines and four of its directors have been sued for misleading Australian investors.
This comes as the debt-ridden airline is undergoing an administration process, with its future shrouded in uncertainty.
On Dec. 11, Australia’s corporation regulator Australian Securities and Investments Commission (ASIC) announced that it had taken legal action against Rex.
It alleged that Rex released a misleading ASX (Australian Securities Exchange) announcement on Feb. 28, 2023, which said the airline was “optimistic” about having positive operating profits for the 2023 financial year, despite not having a reasonable basis for that claim.
The ASIC also alleged Rex violated the disclosure obligations for listed companies as the airline did not disclose a material downgrade in profitability at the time the February ASX announcement was lodged.
Pointing to Rex’s subsequent ASX announcement on June 20, 2023, which forecasted a $35 million (US$22.3 million) operating loss for the 2023 financial year, the regulator said Rex had been aware of the profitability downgrade but did not disclose it earlier.
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At the same time, ASIC alleged that former Rex Executive Chair Lim Kim Hai breached his directors’ duties between Feb. 28 and June 20, 2023, by approving the February announcement and failing to prevent the airline from breaking the laws.
Three other directors, John Sharp, Lincoln Pan, and Siddharth Khotkar, were also sued for failing to ensure Rex met its disclosure requirements prior to June 20, 2023, despite having knowledge of the company’s financial situation in April 2023.
ASIC Chair Joe Longo alleged that there were serious governance failures at Rex and said the regulator would hold the company and its directors 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,” he said in a statement.
“Continuous disclosure of market-sensitive information is fundamental to upholding the integrity of our public markets and supporting a fair and efficient financial system.
“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.”
As Rex is currently under voluntary administration, ASIC said it would not seek financial penalties against the company, and wanted it to issue a statement admitting it had violated the law.
However, the regulator will pursue contravention declarations, penalties, and disqualification orders against the four directors.
At present, Rex has an estimated debt of $500 million.
Lawsuit Has No Impact on Rex and Consumers: Researcher
Rob Nicholls, a senior associate researcher at the University of Sydney, told The Epoch Times that the lawsuit would not have a material impact on the company and consumers.
“The lawsuit is against the directors as individuals. To the extent that Rex as a company is a party, it is in the context of board-level governance,” he said.
“As EY [professional services firm Ernst and Young] is the administrator of Rex, the legal action should not adversely affect consumers (any more than currently).
The researcher also noted that the government’s $80 million bailout should be able to keep the airline flying.
The Epoch Times has reached out to Rex Airlines for comment.
