Three former Regional Express directors cleared by court

By Andrew Curran.

The Australian Securities and Investments Commission (ASIC) has failed in its bid to secure convictions against three former directors of Regional Express Holdings Limited but has succeeded in obtaining findings against former executive chairman, Lim Kim Hai.

The Supreme Court of New South Wales handed down its decision in Sydney this week. The corporate watchdog had prosecuted the four former directors for alleged breaches of its continuous disclosure obligations.

The directors named in the proceedings were former deputy chairman John Sharp, former non-executive directors Siddharth Khotkar and Lincoln Pan, and former executive chairman Lim Kim Hai, widely known as LKH.

ASIC alleged that in early 2023 the company issued a misleading statement to the Australian Securities Exchange (ASX), saying it was “optimistic” about its expected profits for the financial year when, in fact, it was experiencing serious financial difficulties.

The regulator further alleged that Lim knew the statement was misleading but allowed it to be released. The other three directors later became aware the statement was misleading but failed to take steps to correct it. At the time, Regional Express Holdings was listed on the ASX.

The company later reported a AUD31.7 million (USD21.9 million) loss for the financial year and, 12 months later, entered voluntary administration, triggering ASIC’s legal action.

ASIC sought declarations, pecuniary penalties, and orders disqualifying the four directors from managing corporations.

“Our case will allege serious governance failures at Rex,” ASIC Chair Joe Longo said when the proceedings commenced. “We will allege four of Rex’s directors breached their duties because they failed to take steps to ensure the market had accurate information about the company’s financial performance.”

ASIC alleges directors kept quiet about losses, mislead the market

Specifically, ASIC alleged Lim breached his directors’ duties between February 28 and June 30, 2023, by drafting and approving the February 28 ASX announcement and failing to take steps to prevent Regional Express from breaching its continuous disclosure obligations.

One witness during the court hearing described LKH as a “very hands-on chairman.”

ASIC also alleged that Sharp, Khotkar and Pan became aware of financial information from April 14, 2023. That should have prompted them to ensure Rex updated the market before issuing a profit warning on June 20, 2023.

However, Justice Hugo Black ruled this week that ASIC had failed to prove its case against Sharp, Khotkar and Pan and dismissed the claims against them.

Lim had previously admitted all alleged contraventions and accepted that pecuniary penalties and disqualification orders should be imposed.

In this week's judgment, Justice Black said Lim had “rightly admitted responsibility”. He noted that ASIC’s allegations against the remaining three directors were “narrower” than those brought against the former chairman.

“I am not persuaded that Mr Sharp knew, as early as April 14, 2023, that Rex no longer had reasonable grounds to forecast positive operating profits for FY23,” the judgment states.

John Sharp "pleased to be vindicated"

The judge also found that “Khotkar and Pan had less information about Rex’s daily performance than its executive chair and management team and, significantly, Khotkar and Pan did not receive copies of Rex’s monthly management accounts until June 5, 2023.”

Sharp, a former federal transport minister, told The Sydney Morning Herald he was “pleased to be vindicated by the court”.

Lim will return to court on a date yet to be set for sentencing.

Aside from financial penalties, LKH's future involvement with National Jet Express is also at stake. Lim owns the airline in partnership with his brother-in-law, Tjoa Thian Son. ASIC records also show that Lim is a director of the company.

National Jet Express was previously jointly owned by Lim and Regional Express. However, Lim and his brother-in-law acquired full ownership of the fly-in-fly-out operator after Rex’s administrators sold the business during the disposal of the airline’s assets following its collapse.

You can read the full judgement here.

Photo: AI-Generated.

Contact the writer: andrew@aerosouthpacific.com