The Australian Securities and Investment Commission (ASIC) has commenced legal proceedings, seeking leave to allege that Regional Express Holdings Limited, trading as Rex - Regional Express (ZL, Wagga Wagga), engaged in misleading and deceptive conduct in its financial disclosure obligations.

ASIC will also allege that former executive chair Lim Kim Hai, along with John Sharp, Lincoln Pan, and Siddharth Khotkar, contravened their directors’ duties. Regional Express Holdings Limited is one of five companies collectively known as Rex Group that is currently in administration.

"Our case will allege serious governance failures at Rex," said ASIC Chair Joe Longo in a statement dated December 11. "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."

ASIC says Rex released a misleading stock exchange announcement on February 28, 2023, saying Rex was "optimistic the group will have positive operating profits for the full FY23 barring any further external shocks." The company regulator argues that Rex did not have a reasonable basis for believing this for several reasons, including the fact that it had incurred operating losses in the financial year to date and that it had not prepared a forecast for FY23 before issuing the announcement.

The authority will allege that Rex breached its continuous disclosure obligations by failing to disclose a material downgrade, despite being aware when it issued the filing to the stock exchange that the company was unlikely to achieve an operating profit. Rex went on to post an FY2023 operating loss of AUD35 million Australian dollars (USD22.3 million). The company disclosed a downgrade guidance notice on June 20, 2023 - ten days before the end of the financial year.

ASIC alleges Lim contravened his director’s duties between February 28 and June 20, 2023, by authorising the announcement, knowing it was incorrect and failing to take steps to correct it.

Lim and a business partner recently acquired full ownership of National Jet Express (JTE, Adelaide International) after Rex's administrators, Ernst & Young, sold the company's 50% stake. Rex is a long-established regional turboprop operator, moving into scheduled jet operations after Virgin Australia (VA, Brisbane International) went into administration in 2020. Rex gambled Virgin Australia would go out of business and they would fill the void.

However, Virgin was restructured, sold to Bain Capital, and successfully relaunched. It is now making money. Rex's gamble backfired and sent the business into the red and eventual administration. Its jet operations have now ceased while the scheduled turboprop operations continue, albeit supported by the Australian government. In the meantime, Ernst & Young are gradually selling off Rex's various business arms. Because Rex remains in administration, ASIC must seek leave to the NSW Supreme Court to commence the proceedings against it.

Sharp, Pan, and Khotkar are also in ASIC's firing line, with the regulator alleging that, like Lim, they contravened s.180 of Australia's Corporations Act (2001) by failing to ensure Rex informed the stock exchange that it was unlikely to have positive operating profits for FY23. ASIC alleges the three executives came into possession of knowledge about the negative operating result on or around April 14, 2023, and that they did not abide by the disclosure rules.

ASIC says it will not pecuniary penalties against Rex but will seek declarations, pecuniary penalties, and disqualification orders against Lim, Sharp, Pan, and Khotkar.