The corporate regulator is suing embattled airline Rex and four directors for alleged breaches of continuous disclosure obligations.

The Australian Securities and Investments Commission alleges that, after being “optimistic” about recording a profit while amassing millions in monthly losses, Rex failed to reveal it expected a $35 million shortfall until days before the financial year ended.

It accuses the regional airline of deceptive conduct, with ASIC also attempting to have directors disqualified for allegedly contravening their duties.

“Our case will allege serious governance failures at Rex,” commission chair John Longo said on Wednesday.

“Rex’s directors had a responsibility to take reasonable steps to ensure the company complied with the law and we will seek to hold them to account.

“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.”

The airline and four directors, including executive chair Lim Kim Hai have been sued in the NSW Supreme Court.

The regulator is seeking declarations, pecuniary penalties and disqualification orders against Lim, and board members John Sharp, Lincoln Pan and Siddharth Khotkar.

A separate breach of the airline’s disclosure obligations, relating to the expansion from regional services into domestic operations which eventually forced it into administration, led to a $66,000 fine in 2021.

Businesses owed about $500 million across five groups in the organisation when consultancy firm EY was appointed administrator in July, with its shares suspended from trade.

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.

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 the 2022/23 financial year.

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

The three other directors allegedly knew by mid-April 2023 the airline was unlikely to make a profit and contravened their duties by not taking steps to update the market.

The revised interim guidance 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 in June 2023.

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.

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.

Its expansion included competing on Sydney-to-Melbourne flights, one of the busiest routes in the world.

The consumer watchdog found average fares on city routes went up 13 per cent in the two months after Rex stopped those services.

Administrators are yet to find a buyer and at least 600 workers have been made redundant.

Rex was given an $80 million loan facility from the federal government to keep vital regional services operating.

Formed in 2002, Rex is Australia’s largest independent regional airline and makes about 1050 flights a week on 45 routes.

The airline has been contacted through its administrators.

-AAP