ASIC having a tough time getting documents from Rex in deceptive conduct case

The corporate regulator has revealed its struggle to get relevant documents from Rex as the failed airline’s former directors clam up.

Four former Rex directors are hoping silence is golden in their defence of allegations of deceptive and misleading conduct brought by the corporate regulator.

The Australian Securities & Investments Commission has alleged Lim Kim Hai, John Sharp, Lincoln Pan and Siddarth Khotkar sought to deceive or mislead investors by telling the ASX Rex was on track for an operating profit in 2023 when their own data indicated otherwise.

Rex went on to record a full year loss of $31.7m in 2023 and appointed administrators in July 2024 with debts in excess of $500m.

ASIC filed proceedings in the New South Wales Supreme Court last December against Rex, and is seeking financial penalties from each of the directors and a ban on managing corporations.

All of the men have indicated their intention to “vigorously defend” ASIC’s allegations of deceptive and misleading conduct, and have filed their defence to the court.

In a hearing before Justice Ashley Black, Michael Borsky KC for ASIC told the court “the defences are largely denials” and made plain the “penalty privilege” was to be taken.

The penalty privilege allows a defendant to refuse to answer questions or provide information which could expose them to a civil penalty, putting the onus on ASIC to prove the unlawful conduct.

Former Rex deputy chairman John Sharp in happier times for the airline. Picture: Tim Hunter

Mr Borsky revealed the regulator had faced difficulty getting the information it needed from Rex.

“Although it’s true that ASIC exercised its statutory powers in the course of its investigation to obtain documents from Rex before instituting proceedings, there has been, to put it neutrally, lengthy and detailed correspondence about gaps in the company’s compliance in response to those notices, so the full set of documents is not yet available to ASIC or the court,” Mr Borsky said.

He said Mr Sharp, Mr Pan and Mr Khotkar had consented to the discovery request but the second defendant, Mr Lim, wanted an application from ASIC.

“If agreement can’t be reached, it may be necessary instead for ASIC to issue a notice which empowers ASIC to require a person to provide reasonable assistance to ASIC in a civil penalty proceeding such as this,” said Mr Borsky said.

Former executive chairman of Rex, Lim Kim Hai, is one of four directors accused of deceptive and misleading conduct by ASIC. Picture: Justin Brierty

Barrister Elisa Holmes SC for Mr Lim said he did not consent to discovery but “nor did he actively oppose it”.

She presented alternative proposed orders to Justice Black to those of ASIC, which sought to “focus the regulator’s mind on what it really seeks by way of a discovery application”.

“ASIC has filed an affidavit that seems to relate to an anticipated discovery application,” Ms Holmes said.

“It’s quite clear that the categories of discovery sought are very, very wide and also that the discovery appears to be seen by ASIC as a continuation or perhaps patching holes in the investigation process rather than aimed at identifying documents that meet the usual test for discovery and even that are relevant to the active parties in these proceedings.”

It was agreed a date should be set aside for a disclosure application, with Justice Black allocating an entire day in anticipation of objections.

In the event the court finds the former directors guilty of deceptive and misleading conduct, ASIC is seeking to have the men banned from managing a corporation for a period of time determined by the court, and given a financial penalty.

EY is handling the administration of Rex, and is currently seeking a buyer for the regional airline which operates dozens of routes using a fleet of Saab 340s.

In the event no buyer is found, the federal government has indicated it will acquire Rex to ensure the airline’s regional services continue to operate.

Originally published as ASIC having a tough time getting documents from Rex in deceptive conduct case