Four former Rex directors told investors they were optimistic about turning a profit, despite being months from handing down a $35 million loss, a court has heard.
The Australian Securities and Investments Commission has accused Rex’s leadership of misleading and deceptive conduct, and is seeking disqualification orders against the former executive chairman Lim Kim Hai, former chair John Sharp, and directors Lincoln Pan and Siddharth Khotkar.
On February 28, 2023 Rex released a statement to the market claiming it was optimistic the company would post positive operating profits for the financial year, barring any external shocks.
The statement was not corrected until June 20, 10 days before the end of the financial year, when Rex forecasted a $35 million loss.
The initial claim had been made despite Rex incurring operating losses in the period to February, ASIC barrister Michael Borsky KC argued.
“Rex was unlikely to have positive operating profits for the full year and indeed … Rex did not have reasonable grounds to expect that it would have positive operating profits for the full year on each of the relevant dates throughout,” Mr Borsky told the Sydney Supreme Court hearing.
“We note that no external shocks in the nature of, for example, COVID or a war or any other major interruptions or external shocks have been identified by the defendants or are even suggested in the evidence on our reading of it.”
According to ASIC, the optimism about turning a profit was unreasonable given Rex only had five months to turn its previous losses for the year around, particularly since the second half of the financial year is generally weaker for Australia’s domestic airline industry.
A separate breach of the airline’s disclosure obligations, relating to the expansion from regional services into domestic operations that eventually forced it into administration, led to a $66,000 fine in 2021.
It was snapped by US aviation group Air T via administrators EY in October, after the federal government had bought $50 million of the airline’s debt from a major creditor and loaned Rex up to $80 million to keep regional routes running.
Rex is Australia’s largest independent regional airline, flying to 53 destinations across the nation.
The case continues.
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