The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against Regional Express Holdings Limited (Rex Airlines).
The lawsuit, which has been lodged against Rex Airlines and four of its directors by ASIC alleges misleading and deceptive conduct.
The regulatory body claims that Rex released a misleading ASX announcement on February 28, 2023. This announcement expressed optimism about the company’s potential to achieve positive operating profits for the full financial year 2023.
However, ASIC contends that Rex lacked a reasonable basis for this assertion. It cited the fact that the company had incurred operating losses. Rex had also made the statement despite the absence of a prepared financial forecast for the year.
ASIC’s Allegations
ASIC further alleges that Rex failed to disclose a material downgrade in its financial performance. It claimed the airline group was aware of its unlikely ability to achieve an operating profit when issuing the February announcement.
This alleged non-disclosure continued until a subsequent announcement on June 20, 2023. At this point, Rex forecasted a significant $35 million operating loss for the financial year ending June 30, 2023.
The lawsuit also names four directors of Rex as defendants:
- Lim Kim Hai: Former Chairman
- John Sharp: Former Australian government minister
- Lincoln Pan: PAG Asia Capital executive
- Siddharth Khotkar: PAG Asia Capital executive
ASIC alleges that these directors breached their duties by failing to ensure the market’s access to accurate information about the company’s financial performance.
ASIC Chair Joe Longo emphasized the seriousness of the alleged governance failures at Rex. He stated that the regulator aims to hold the company and its directors accountable for their actions.
Implications of the Lawsuit
The ASIC lawsuit against Rex Airlines has significant implications for the company, its directors, and the broader investment community. If found guilty, Rex and its directors could face substantial penalties, including fines and potential disqualification from holding corporate offices.
Rex Airlines, the third largest Australian airline, entered voluntary administration on July 30, 2024. This decision followed a period of financial strain and operational challenges, primarily stemming from the company’s ambitious expansion into the domestic jet market with its Boeing 737 fleet.
The expansion proved to be a costly endeavor, as Rex unsurprisingly faced intense competition from the established major carriers Qantas and Virgin Australia.
Rising fuel costs, labor shortages, and economic uncertainties further exacerbated the airline’s financial position. As a result, the company was forced to suspend its domestic jet services and focus on its regional operations, primarily serviced by its Saab 340 fleet.
The outcome of the ASIC lawsuit will now be closely watched by investors, regulators, and the broader aviation community. It could have a significant impact on the Australian reginal aviation sector and market integrity in Australia.
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