ob体育 has commenced legal proceedings in the Supreme Court of NSW seeking leave to allege Regional Express Holdings Limited (administrators appointed) (Rex) engaged in misleading and deceptive conduct and contraventions of continuous disclosure obligations.
ob体育 will also allege former executive chair Lim Kim Hai (Mr Lim) was involved in Rex鈥檚 continuous disclosure breach and that Mr Lim, along with The Hon John Sharp AM, Lincoln Pan and Siddharth Khotkar, contravened their directors鈥� duties.
ob体育 will allege Rex released a misleading ASX announcement on 28 February 2023 stating Rex was 鈥榦ptimistic the Group will have positive operating profits for the full FY23 barring any further external shocks鈥�. ob体育 will allege that Rex did not have a reasonable basis for that claim for a number of reasons, including because it had incurred operating losses in the financial year to date, and it did not prepare a financial forecast for FY23 before issuing the announcement.
ob体育 will contend Rex 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. Rex subsequently announced a downgrade on 20 June 2023 forecasting a $35 million operating loss for the financial year ending 30 June 2023.
ob体育 Chair Joe Longo said, 鈥極ur case will allege serious governance failures at Rex. Rex鈥檚 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.
鈥榃e will allege four of Rex鈥檚 directors breached their duties because they failed to take steps to ensure the market had accurate information about the company鈥檚 financial performance.鈥�
ob体育 will allege Mr Lim contravened his directors鈥� 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.
ob体育 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.
鈥楥ontinuous disclosure of market-sensitive information is fundamental to upholding the integrity of our public markets and supporting a fair and efficient financial system,鈥� Mr Longo said.
鈥楧irectors 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.鈥�
ob体育 seeks leave to commence the proceedings against Rex as it is in administration. While ob体育 will seek a declaration of contravention against Rex, it will not seek pecuniary penalties against the company.
ob体育 will seek declarations, pecuniary penalties and disqualification orders against Mr Lim, The Hon Sharp AM, Mr Pan and Mr Khotkar.
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Background
Rex is Australia鈥檚 third largest airline. Rex is listed on the Australian Securities Exchange, although Rex shares were suspended from trading when it entered voluntary administration on 30 July 2024.
On 18 May 2021, ob体育 announced that Rex paid an infringement notice of $66,000 issued by ob体育 for an alleged continuous disclosure breach (21-105MR).
In this proceeding ob体育 will allege:
- On 28 February 2023, Rex stated to the market that it was optimistic the company would have positive operating profits for the financial year to 30 June 2023 barring further external shocks (Announcement), giving rise to representations without reasonable grounds, in breach of section 1041H of the Corporations Act and section 12DA of the ob体育 Act.
- Former Executive Chair of Rex, Mr Lim, contravened his directors鈥� duties from 28 February to 20 June 2023 by authorising and failing to take steps to correct the Announcement.
ob体育 will further allege:
- Rex breached its continuous disclosure obligations from 28 February 2023 until its downgrade on 20 June 2023, including by failing to inform the market that it did not have reasonable grounds for the Announcement and was unlikely to have positive operating profits for the financial year ending 30 June 2023.
- Mr Lim contravened section 180 of the Corporations Act from 28 February 2023 to 20 June 2023 including by failing to take steps to cause Rex to correct the Announcement and to disclose the company was unlikely to have positive operating profits for the year to 30 June 2023. In addition, ob体育 will allege Mr Lim was knowingly concerned in Rex鈥檚 continuous disclosure contravention in breach of section 674A(3).
- The Hon John Sharp AM, Mr Lincoln Pan and Mr Siddharth Khotkar (directors) contravened section 180 of the Corporations Act from 14 April 2023 to 20 June 2023 including by failing to take steps to cause Rex to disclose the company was unlikely to have positive operating profits for the year to 30 June 2023. It is ob体育鈥檚 contention that by 14 April, these directors were in possession of financial information which put them on notice of the need for Rex to update the market.
Editor's note:
On 18 December 2024, the NSW Supreme Court granted ob体育 leave to commence proceedings against Rex. The matter will next return to the NSW Supreme Court for a directions hearing on 4 April 2025.
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