ASIC has restricted Regional Express Holdings Limited (REX) from issuing a reduced-content prospectus and using exemptions for reduced disclosure in fundraising documents until 14 December 2021.
The decision means REX will not be able to rely on reduced-disclosure rules and instead must issue a full prospectus in order to raise funds from investors.
ASIC’s decision was based on REX’s failure to disclose to the market that it was considering the feasibility of commencing domestic operations, such as flying to capital cities, in addition to its regional operations. This information was first released publicly to a journalist on 11 May 2020.
ASIC considers the ability to use a reduced-disclosure prospectus a privilege that is dependent on compliance with other aspects of the law, including that companies meet their ongoing disclosure obligations.
Where a company fails to comply with its disclosure obligations in a full, accurate and timely manner, ASIC will intervene to ensure that investors are protected.
ASIC’s investigation into REX’s conduct is ongoing.
REX has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.
On 11 May 2020, REX’s deputy chairman John Sharp gave an interview to Australian Financial Review journalist Tony Boyd. Mr Sharp revealed that REX was considering commencing domestic operations. The following day, Mr Boyd published an article in the Australian Financial Review referring to REX’s plans to invest $200 million to start new capital city services.
Following the article, on 12 May 2020, REX was placed in a trading halt by the Australian Securities Exchange (ASX).
On 13 May 2020, REX released an announcement on ASX titled REX Responds to Recent News Article. The announcement stated:
…[REX] is considering the feasibility of commencing domestic airline operations and following an earlier article regarding Rex comments on the administration process of Virgin Australia, Rex discloses that it is has been approached by several parties interested in providing the equity needed for Rex to start domestic operations in Australia. The preliminary estimate of equity required is in the vicinity of $200 Million dollars and the structure of equity raising is yet to be determined.
Following the announcement, REX opened on ASX at $1.26, rising as high as $1.31 and closed at $1.19 up 32% from the previous closing price of $0.90.
Under section 713 of the Corporations Act, a listed company can offer securities using a reduced content prospectus containing information relating only to the particular offer itself. Sections 708A and 708AA of the Act outline further circumstances in which a company does not need to provide any disclosure for the sale offer of its securities. ASIC has the power to prevent a company from relying on the reduced disclosure rules under these sections if the company breaches its continuous disclosure or financial reporting obligations.