The corporate regulator warned Treasurer Jim Chalmers in secret briefings it had become increasingly concerned about the governance of regional airline Rex’s four directors and was investigating the company months before the federal government controversially bailed it out.
Hours after Rex went into administration on July 30, the Australian Securities and Investments Commission’s (ASIC) deputy chair, Sarah Court, told Chalmers and assistant treasurer Stephen Jones she wanted to confirm media speculation that the regulator was probing the airline for misleading and deceiving investors about its profitability.
The corporate regulator warned Treasurer Jim Chalmers in secret briefings it had become increasingly concerned about beleaguered airline Rex. Credit: Jeremy Piper
“The investigation is ongoing, and no decision has been made to commence proceedings,” Court and a senior ASIC executive said in confidential ministerial briefings, obtained by this masthead under the Freedom of Information Act.
“During the course of the investigation, ASIC has developed an increasing concern about the governance of the relevant Rex directors – many of whom sit on the current Rex board – and their ability to discharge their duties.”
ASIC launched legal action against Rex and its directors John Sharp (a former Howard government minister), Lim Kim Hai, Lincoln Pan and Siddharth Khotkar in the NSW Supreme Court in December, alleging they misled the market in February 2023 about the health of the company’s finances.
While Rex is a crucial service for many regional and remote Australians, it entered into voluntary administration last year following its botched attempt to expand into capital-city routes during the COVID-19 pandemic. Its administrators EY have revealed Rex has a $500 million total debt to 4800 creditors.
However, given the airline’s importance to regional Australia, where there is a dearth of transport options, the future of Rex has become politically sensitive, with both the federal government and the opposition offering support to rescue the carrier in the lead-up to the election due by May.
Prime Minister Anthony Albanese formally announced on Wednesday that the Commonwealth was preparing to buy Rex and saddle taxpayers with its debt if it cannot find private buyers after the administration formally ends on June 30.
“We’re determined to make sure that regional communities are not left behind,” Albanese said from Merimbula in NSW. “It’s a core commitment that I made. No one held back, no one left behind.”
Deputy Liberal leader Sussan Ley on Wednesday hit back at the government’s plans to own an airline, which will be the first since Qantas was privatised in the 1990s, saying taxpayers should not be forced to pay for a carrier.
This is despite Nationals leader David Littleproud in November welcoming “anything that’s going to keep Rex in the air” and Opposition Leader Peter Dutton in January saying the Coalition “would be happy to support the government in a bipartisan way to see Rex Airlines fly again”.
“The most important thing for a government, with airline policy, is to get the policy and regulatory settings right so that you do have a sustainable and competitive aviation sector,” Ley told Sky News.
Despite being aware of the ASIC investigation that had not yet been revealed publicly by the regulator, the Albanese government in November controversially granted Rex an $80 million “conditional loan” to keep the airline operating regional flights until July.
And just last month the federal government stepped in further to acquire $50 million in debt from Rex’s largest creditor, PAGAC Regulus Holdings Limited.
“The investigation relates to alleged continuous disclosure failures by Rex regarding Rex’s profit guidance for financial year 2023 announced on 28 February 2023,” ASIC’s ministerial briefing from July 31 states.
In a subsequent update to Chalmers and Jones on December 9, Court said it had decided to sue the airline and its four directors.
She informed the ministers that ASIC would seek consent from EY to launch litigation and ask the directors how they can be served legal letters on December 9, before filing proceedings a day later and then making a public comment on December 11.
“The administrators have recently (November 2024) obtained $80 million of government funding to continue to provide its services operated by Regional Express Pty Ltd (a wholly owned subsidiary of Rex) to regional centres, as well as granting early access to entitlements for former employees of the business,” Court’s ministerial briefing noted.
ASIC is not seeking financial penalties against Rex but wants the Supreme Court to rule that the airline contravened the Corporations Act. The regulator also wants the court to fine and disqualify directors Lim, Sharp, Pan and Khotkar.
An ASIC spokesman said that as the “matter is before the court, we have no comment to make at this time”.
EY referred to a previous statement that it would be inappropriate to comment as the matter was before the court. Chalmers was contacted for comment.