ASIC sues Rex over alleged 'serious governance failures'

The news: The Australian Securities and Investments Commission (ASIC) is suing regional airline operator Rex Airlines over alleged governance failures linked to its voluntary administration.

The context: ASIC has commenced legal proceedings in the Supreme Court of NSW, alleging Rex — which entered into voluntary administration on 30 July — engaged in misleading and deceptive conduct and contraventions of continuous disclosure obligations.

ASIC will allege former executive chair Lim Kim Hai was involved in Rex’s continuous disclosure breach and that Lim, along with fellow directors Lincoln Pan, Siddharth Khotkar and former Nationals transport minister John Sharp, contravened their duties.

The securities regulator will also allege that:

• Rex released a misleading ASX announcement on 28 February 2023 stating the company was "optimistic the group will have positive operating profits for the full FY23", despite having "no reasonable basis for that claim";
• 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;
• 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; and
• 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.