<?xml version="1.0" encoding="ISO-8859-1"?> <docID>335045</docID> <postdate>2024-12-11 16:53:55</postdate> <headline>Rex directors face grounding for silence over $35m hole</headline> <body><p><img class="size-full wp-image-299867" src="https://citynews.com.au/wp-content/uploads/2023/12/Rex_Aircraft_Aerial_4-resized-e1703282678755.jpg" alt="" width="765" height="510" /></p> <caption>Rex is accused of misleading and deceptive conduct by the corporate regulator.</caption> <p class="wire-column__preview__author"><span class="kicker-line">By <b>Jack Gramenz and Alex Mitchell</b> in Sydney</span></p> <p><strong>After being "optimistic" about recording a profit while losing millions of dollars monthly, directors at troubled airline Rex failed to reveal an expected $35 million shortfall until days before the financial year ended, a regulator alleges.</strong></p> <p>The federal government had been briefed on an investigation into what prior investors were told, before extending an $80 million lifeline to keep vital regional services operating.</p> <p>Following the investigation, the Australian Securities and Investments Commission is attempting to have four directors disqualified over alleged corporate governance failures.</p> <p>"They failed to discharge their duties to ensure that the market was properly informed," commission chair Joe Longo told reporters on Wednesday.</p> <p>The airline and four directors have been sued in the NSW Supreme Court for allegedly failing to provide accurate and timely information to the market, contravening continuous disclosure obligations.</p> <p>The regulator is seeking declarations, pecuniary penalties and disqualification orders against Lim Kim Hai, John Sharp, Lincoln Pan and Siddharth Khotkar.</p> <p>The court will need to grant the regulator leave to sue the airline because it is in administration.</p> <p>An earlier breach of disclosure obligations, relating to the expansion from regional services into domestic operations that eventually forced Rex into administration, led to a $66,000 fine in 2021.</p> <p>Businesses owed about $500 million across five groups in the organisation when consultancy firm EY was appointed as administrators in July, with its shares suspended from trade.</p> <p>The airline's administrators said it would be inappropriate to comment because the matter is before court.</p> <p>Rex told the market it was optimistic about the company making a full-year profit in February 2023 barring further external shocks, a representation without reasonable grounds, the regulator said.</p> <p>Then-executive chair Mr Lim allegedly contravened his duties by authorising the announcement and failing to correct it until 10 days before the financial year's end, when the market learned a loss of $35 million was expected for 2022/23.</p> <p>The company blamed a "global shortage of pilots and engineers, along with supply chain shocks post-COVID" for disruptions that forced significant reductions in scheduled flights.</p> <p>The three other accused directors allegedly knew by mid-April 2023 the airline was unlikely to record a profit and contravened their duties by not taking steps to update the market.</p> <p>Revised interim guidance in June 2023 said the airline remained optimistic about a pre-tax profit for the next financial year "and beyond" thanks to expanded domestic jet operations and new contracts.</p> <p>Nominally a regional carrier, the airline made an aggressive push to compete on key capital-city routes against industry heavyweights Qantas and Virgin in 2021.</p> <p>It has struggled financially since, reporting a bottom-line net loss of $3.2 million for the first half of the 2023/24 financial year.</p> <p>Its expansion included competing on Sydney-to-Melbourne flights, one of the busiest routes in the world.</p> <p>The consumer watchdog found average fares on city routes increased 13 per cent in two months after Rex stopped those services.</p> <p>Administrators are yet to find a buyer and at least 600 workers have been made redundant.</p> <p>The Transport Workers Union said the alleged contraventions create more uncertainty about the airline's future and further necessitate the government taking an equity stake.</p> <p>"It is crystal clear we cannot let Rex fail," national secretary Michael Kaine said.</p> <p>Formed in 2002, Rex is Australia's largest independent regional airline and makes about 1050 flights a week on 45 routes.</p> </body>