ASIC alleges Rex deceived investors for months about ‘bewilderingly bad’ ticket sales

Rex’s board knew ticket sales were ‘bewilderingly bad’ and losses were mounting but failed to let investors know for months, the corporate regulator has alleged.

Rex’s board was aware ticket sales were “bewilderingly bad” and the company’s losses were continuing to mount after telling investors it was expected to make a profit in the 2023 financial year, the corporate regulator has alleged.

Documents filed by the Australian Securities and Investments Commission in the New South Wales Supreme Court have spelt out how Rex’s former chairman allegedly attempted to mislead investors about the airline’s true financial position.

ASIC has accused Lim Kim Hai and Rex directors John Sharp, Lincoln Pan and Siddharth Khotkar of misleading and deceptive conduct in breach of the ASX continuous disclosure obligations.

Central to the matter is an ASX statement made on February 28, 2023 claiming Rex would have positive operating profits for the 2023 financial year, barring any external shocks.

ASIC’s application to the New South Wales Supreme Court said Rex “did not have reasonable grounds to publish that guidance” following a $30.4m loss in the first half, and a further loss of $5.3m in January.

Former Rex executive chairman Lim Kim Hai is being pursued by the corporate regulator in court for allegedly deceptive and misleading conduct. Picture: Justine Brierty

The documents also revealed Mr Lim and his fellow directors failed to update the market until June 20, despite receiving data on at least six other occasions which made it clear Rex would not record a profit in 2023.

In perhaps the most damning revelation, ASIC alleged Mr Lim even asked Asian investor PAG for $10m in funding on April 14, 2023, warning cash reserves were “critically low” and domestic ticket sales “disappointingly and bewilderingly bad”.

In an email to Mr Pan and Mr Khotkar, who represented PAG on the Rex board, Mr Lim “described February results as ‘having crashed’ and a lack of recovery in March” said the ASIC statement of claim.

A spreadsheet attached to the email revealed the Rex 737 operations had recorded a before tax loss of $7.2m in February and $2.5m in March.

“In addition Mr Lim received the year-to-date profit and loss figures for the Rex Group for March 2023, and Rex was thereby aware that the group had incurred a year-to-date operating loss of $49.7m,” said ASIC’s claim.

Furthermore, Mr Khotkar sent Mr Pan a route performance analysis observing “Rex’s load factors seems to have dropped more than the industry” and “April doesn’t appear to be showing significant improvement”.

By April, the year-to-date operating loss had climbed to $53.4m with the figures reviewed at a board meeting attended by Mr Lim, Mr Sharp, Mr Pan and Mr Khotkar, on May 16.

Former Rex chairman John Sharp plans to defend ASIC’s allegations of deceptive and misleading conduct. Picture: Tim Hunter

ASIC alleged the information was such that a “reasonable person would have expected, if it had been generally available, to have had a material effect on Rex’s share price”.

Indeed, when revised guidance was released on June 20, the Rex share price fell 11.2 per cent, ASIC noted.

Mr Khotkar resigned from the Rex board the following April, and soon after Mr Lim was ousted from the position of chairman due to concerns over corporate governance.

On July 30, 2024, Rex appointed EY as voluntary administrators, and permanently grounded major city services flown by 737s.

The regional flights operated by Saab 340s are continuing with federal government support, but as yet no buyer has been found for the business.

Mr Lim, Mr Sharp, Mr Pan and Mr Khotkar have all pledged to vigorously defend the ASIC allegations, which could see the four men banned from operating or directing a company.

The matter is due to return to the Supreme Court on April 4.

Originally published as ASIC alleges Rex deceived investors for months about ‘bewilderingly bad’ ticket sales