The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings in the Supreme Court of New South Wales against Regional Express Holdings Limited (Rex) and four of its directors, accusing them of severe governance breaches. This high-profile case addresses allegations of misleading conduct and violations of continuous disclosure obligations, signalling ASIC’s commitment to holding corporate leaders accountable.
ASIC’s legal action targets Rex’s former executive chair, Lim Kim Hai, alongside directors The Hon John Sharp AM, Lincoln Pan, and Siddharth Khotkar. The allegations stem from what ASIC claims was a misleading ASX announcement made on February 28, 2023, asserting that Rex was “optimistic the Group will have positive operating profits for the full FY23 barring any further external shocks.”
Misleading Financial Claims: Key Allegations
According to ASIC, Rex did not have a reasonable basis for its February 28 announcement. The regulator contends that the airline had already incurred significant operating losses during the financial year to date and had failed to prepare an economic forecast for FY23 before issuing the statement. These alleged oversights, ASIC argues, constitute a breach of continuous disclosure rules, as Rex failed to provide the market with an accurate picture of its financial position.
On June 20, 2023, Rex disclosed a material downgrade, projecting a $35 million operating loss for the financial year ending June 30, 2023. ASIC claims this disclosure came too late, undermining market integrity and investor confidence.
ASIC Chair Issues Strong Statement
ASIC Chair Joe Longo described the case as an example of “serious governance failures” and underscored directors’ responsibilities in ensuring compliance with legal and ethical standards.
“Our case will allege that Rex’s directors failed to take reasonable steps to ensure the company complied with the law. Continuous disclosure of market-sensitive information is fundamental to upholding the integrity of our public markets and supporting a fair and efficient financial system,” Longo stated.
He further emphasized the role of directors in maintaining corporate accountability: “Failing to take reasonable steps to ensure a company is compliant is not acceptable. We will seek to hold these individuals to account.”
Directors’ Duties Under Scrutiny
ASIC’s allegations extend to the individual conduct of Rex’s directors. Mr Lim, who drafted and approved the February 28 statement, is accused of failing to prevent the company from breaching continuous disclosure obligations. Furthermore, ASIC contends that the three other directors became aware of critical financial information from April 14, 2023, but failed to ensure the market was promptly updated.
ASIC’s case highlights the critical importance of directors’ duties in listed companies, particularly their role in ensuring transparency and compliance with continuous disclosure regulations.
Legal Actions and Penalties
Given Rex’s current status under administration, ASIC is seeking leave from the court to pursue its case against the company. While ASIC aims to secure a declaration of contravention against Rex, it will not seek financial penalties from the airline itself. However, the regulator plans to pursue pecuniary penalties, disqualification orders, and other declarations against the four directors.
Broader Implications for Corporate Governance
This case underscores ASIC’s intensified focus on corporate governance and its determination to address misconduct in Australia’s financial and corporate sectors. By bringing high-profile cases like this to the forefront, ASIC aims to deter similar breaches and foster greater accountability among corporate leaders.
The case is a stark reminder of the importance of robust governance frameworks and adherence to disclosure obligations for businesses operating in regulated markets. Failure to comply can lead to severe legal and reputational repercussions.
Written by: Michelle Warner
