Lessons in Optimism

OnBoard with Rex Airlines: Correcting course

The Supreme Court of New South Wales delivered judgment on 30 June 2026 in proceedings brought by ASIC concerning profit guidance issued by Regional Express Holdings Ltd (Rex)[1]. The decision is a timely reminder that while guidance may be reasonable at the time it is given, continuous disclosure issues may arise as circumstances change or further information comes to light.

A brief history

ASIC’s case centred on Rex’s announcement on 28 February 2023, which included a statement in relation to its profits for FY23 that it was:

“optimistic that the Group will have positive operating profits for the full FY23 barring any further external shocks”[2].

On 20 June 2023, it revised that guidance to a forecast group operational loss of $35 million. By 30 July 2024, Rex entered voluntary administration.

ASIC alleged that:

• Rex had engaged in misleading or deceptive conduct and breached its continuous disclosure obligations; and
• Rex’s former CEO, Lim Kim Hai, and non-executive directors, the Hon. John Sharp AM, Lincoln Pan and Siddarth Khotkar, had breached their directors’ duties.

The Court found that Rex breached its continuous disclosure obligations and Mr Lim admitted liability. However, the Court dismissed ASIC’s misleading or deceptive conduct claim and its claims against each non-executive director.

On 20 August 2026, ASIC filed a notice of intention to appeal the dismissal of its claims against the non-executive directors, so watch this space.

Optimism is not mere hope

ASIC pleaded three possible meanings of Rex’s 28 February 2023 statement[3]:

1. the Rex Group would have positive operating profits for [FY23], barring any further external shocks; or
2. it was likely that the Rex Group would have positive operating profits for [FY23]; or
3. there were reasonable grounds to expect that the Rex Group would have positive operating profits for [FY23].

The Court accepted only the third formulation[4]. However, even in its “least exacting” form, the Court held that a reasonable reader would not understand a formal ASX announcement to be a mere hope from a “corporate Pollyanna” - the statement communicated a positive expectation held on reasonable grounds.

When optimism needs an update

The Court rejected ASIC’s claim of misleading or deceptive conduct, finding that Rex had reasonable grounds for the statement when it was made. For the same reason, there was no breach of Rex’s continuous disclosure obligations at the time the statement was made.

However, as further information came to light and the end of FY23 approached, the justifiability of Rex’s optimism for positive operating profits eroded. Internal communications sent to directors described domestic sales as “disappointingly and bewilderingly bad”, noted the February results initially expected to partially recover Rex’s position as having instead “crashed”, and that cash reserves were “critically low”.

The Court found that, from 14 April 2023, Rex knew it no longer had reasonable grounds to forecast positive operating profits for FY23[5]. Critically, Rex did not correct the market until 20 June 2023, over two months later. The Court therefore found Rex contravened its continuous disclosure obligations from 14 April to 20 June 2023[6].

Lessons for boards

• Treat (particularly positive) guidance as imposing an ongoing governance and disclosure commitment. Identify the assumptions, metrics, and trigger points that may require reconsideration.
• Do not wait for a precise revised figure where existing guidance has lost its reasonable basis. The Court observed that qualitative corrective disclosure can be made first, with quantified guidance to follow when available.
• Keep clear records of why the board and management teams maintained, revised or withdrew guidance, including the information reviewed, any contrary indicators, and inquiries made.

The case against non-executive directors

ASIC brought proceedings against the non-executive directors for a breach of directors’ duties under section 180 of the Corporations Act 2001 (Cth). ASIC alleged that:

• the directors knew that the company did not have reasonable grounds to continue to forecast an operating profit; and
• with that knowledge, failed to take reasonable steps to ensure that the company corrected the announcement.

Accordingly, a key question for the Court was whether the directors, in fact, had the relevant knowledge as alleged by ASIC. After a careful examination of the evidence led against the directors, the Court held “with hesitation” that while the evidence showed that each non-executive director had at least a reason to be concerned that the company no longer had reasonable grounds to forecast positive operating profits, it “did not rise to the level of actual knowledge of that matter”[7].

While the claims against the non-executive directors were dismissed by the Court, the judgment makes some key observations which directors should keep in mind.

Lessons for boards

• For nominee directors, be alert to the role you are expected to fulfil and the expertise you were appointed to bring to the board, as these may give rise to a heightened standard of care and diligence to discharge your statutory duties.
  
  The Court acknowledged that nominee directors are in a special position as compared to other non-executive directors. For PAG’s nominee directors, the Court accepted that “the circumstances of their nomination suggested that each of them would pay particular attention to Rex’s financial performance on an ongoing basis”[8].

• If information becomes known that suggests that market disclosures require correction, take steps to address those developments. This should be done by raising the issue with other directors, convening a directors’ meeting, and potentially resigning as director if the issues are not resolved and notifying ASX / ASIC of the reasons for the resignation.
  
  These were the reasonable steps that the Court identified in the hypothetical scenario where directors had the requisite knowledge as alleged by ASIC. Importantly, merely raising a concern does not appear to be sufficient if the issue remains unresolved. Directors are expected to take active steps to resolve the issue, failing which resignation may be in order.