Rex brass promised profit before plunging to $35m loss
Four former Rex executives told investors they were optimistic about making a profit months after the $35 million loss, the court heard.
The Australian Securities and Investments Commission has accused Rex’s leadership of misleading and deceptive conduct and is seeking disqualification orders against former chairman Lim Kim Hai, former chairman John Sharp and directors Lincoln Pan and Siddharth Khotkar.
On February 28, 2023, Rex issued a statement to the market claiming that he was optimistic that barring any external shocks, the company would post positive operating profits for the financial year.
The statement was not corrected until June 20, 10 days before the end of the fiscal year, when Rex projected a loss of $35 million.
ASIC barrister Michael Borsky KC argued that the initial claim was made despite Rex suffering operating losses in the period to February.
“Rex was unlikely to achieve positive operating profits for the full year and in fact… Rex did not have reasonable grounds to expect it to achieve positive operating profits for the full year at each of the relevant dates,” Mr Borsky told the Sydney Supreme Court hearing.
“We note that no external shocks in the nature of, for example, Covid-19 or war or any other major disruption or external shock have been identified by the defendants or even suggested in the evidence in our reading.”
According to ASIC, optimism about making a profit was unreasonable given that Rex had only five months this year to recoup its previous losses; particularly as the second half of the financial year was generally weaker for Australia’s domestic airline industry.
A separate breach of the airline’s disclosure obligations related to expansion from regional services to domestic operations eventually forced it into administration and led to a $66,000 fine in 2021.
It was canceled by US aviation group Air T through administrators EY in October after the federal government 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 country.
The case continues.
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