Background
ASIC sued Regional Express Holdings Limited (Rex), an ASX-listed airline company, and several of its directors over a February 2023 announcement stating that Rex was “optimistic that the Group will have positive operating profits for the full FY23 barring any further external shocks.” Over the following four months, Rex’s financial position deteriorated significantly. On 20 June 2023, Rex announced an operating loss instead of the forecast profit. ASIC contended that Rex and its directors breached continuous disclosure obligations under the Corporations Act and ASX Listing Rules by failing to promptly notify the market that the company no longer had reasonable grounds to forecast positive operating profits.
Rex operated regional and domestic airline services and was subject to continuous disclosure requirements as a listed entity. The company’s board comprised Mr. Lim Kim Hai (CEO/executive chair), the Honourable John Randall Sharp AM (deputy chair and non-executive director), and three other non-executive directors, among others. ASIC sought declaratory relief against Rex and pecuniary penalties and disqualification orders against the individual directors.
The Court’s Holding
Justice Black established a breach of continuous disclosure obligations. The Court found that while the February 2023 representation had reasonable grounds when made, Rex failed to notify the ASX when those grounds no longer existed. Between late February and June 2023, deteriorating monthly operating losses demonstrated that positive full-year operating profits had become unlikely. The Court held that Rex was obliged to disclose this material change in circumstances—specifically, that the Group did not have, or no longer had, reasonable grounds to forecast positive operating profits for FY23.
However, the Court dismissed ASIC’s claim that the February 2023 representation itself constituted misleading or deceptive conduct. The Court found that the representation was made with reasonable grounds at the time it was issued. Expert evidence showed that while unlikely, positive operating profits remained achievable absent further external shocks on that date. Mr. Lim Kim Hai admitted liability for breach of his directors’ duties under section 180 of the Corporations Act; the question of penalties was reserved for a later hearing. The Court rejected claims against the three non-executive directors, finding that ASIC had not established they possessed actual knowledge of the relevant facts necessary to breach their duties.
Key Takeaways
- Continuous disclosure obligations require timely notification when reasonable grounds for profit forecasts cease to exist, even if the original forecast was supported by reasonable grounds when made.
- Misleading conduct claims and continuous disclosure breaches are distinct: a statement may have reasonable grounds initially but trigger disclosure obligations when circumstances change materially.
- Non-executive directors are not liable for continuous disclosure breaches unless they had actual knowledge of the material facts underlying the breach.
- The absence of documented profit forecasts does not itself establish breach, but the failure to disclose material adverse developments does.
Why It Matters
This decision clarifies that ASX-listed companies must actively monitor whether previously disclosed profit forecasts retain reasonable grounds and must promptly disclose when they do not. The distinction between misleading conduct claims (assessed at the date of the statement) and continuous disclosure breaches (assessed over time) is critical: a company cannot rely on reasonable grounds at the time of announcement to immunize itself from later disclosure obligations as facts change. This is particularly significant for companies in volatile industries like aviation, where monthly performance fluctuations can rapidly erode the foundation for forward-looking statements.
The decision also narrows directors’ exposure for continuous disclosure breaches: non-executive directors cannot be held liable without proof of actual knowledge. However, executive directors with close involvement in financial operations and decision-making—such as Mr. Lim—face substantial personal liability for their role in breaching disclosure obligations. Companies must establish robust monitoring of whether profit forecasts remain credible and assign clear responsibility for timely disclosure when they do not.