The recent decision in Australian Securities and Investments Commission v Rio Tinto Limited (Rio Tinto)(No 2)  FCA 184 (ASIC v Rio Tinto) acts as a reminder of the importance of complying with continuous disclosure obligations of not only the company, but also of a company’s officers and directors.
In this case, orders were made requiring Rio Tinto to pay a penalty of $750,000 following its admission during negotiations with ASIC that they had contravened s 674(2) of the Corporations Act 2001 (Cth) (Act) by failing to fulfil their continuous disclosure obligations to the market.
Companies listed on the Australian Securities Exchange (ASX) are obliged to disclose information that could prevent or correct a false market, that is speculative or otherwise in nature, or that relates to the intentions or likely intentions of a person, and that is not generally available.
Subsection 674(2) of the Act prescribes continuous disclosure obligations as they relate to a company. Pursuant to this section of the Act, a company must notify the market of any information not generally available where a reasonable person would expect the information, if it were generally available, to have a material effect on the value of the company’s securities. A breach of this section constitutes an offence, and the maximum penalty for a body corporate is currently $1,332,000, and five years’ imprisonment or $133,320 for an individual.
Subsection 674A(2) is identical to subsection 674(2) of the Act, with the addition of a fault element where there is a knowing, recklessness or negligence aspect regarding information that may be subject to market disclosure. Breaches under subsection 674A(2) may result in a financial services civil penalty of up to 5,000 penalty units (currently $1.1 million) or three times the benefit obtained and detriment avoided, whichever is greater. It is a defence to the obligations arising pursuant to s 674A(2) of the Act where persons are able to prove that they took all (if any) reasonable steps to ensure the company was compliant with its continuous disclosure obligations, and then reasonably believed that the company was compliant with those obligations.
Given the terms on which one may establish a defence to such a breach, companies should ensure they have adequate processes and practices in place to ensure that they properly review and ensure ongoing compliance with their continuous disclosure obligations. In that regard, the matter of ASIC v Rio Tinto is a timely reminder that these processes should be reviewed and updated regularly to reflect any relevant changes to the Act. Such processes should allow for in-depth analysis and review of any information that should be, or may be found upon review to be, disclosed to the market.
In this matter, Rio Tinto was ultimately ordered to:
Originally, the proceedings included claims by ASIC against the then CEO and CFO of Rio Tinto, however, these claims were discontinued against the officers under the terms of the agreement between ASIC and Rio Tinto to resolve the dispute.
The Court in this matter found (consistent with the facts of the case as agreed by the parties):
A company, as well as its officers and directors, are subject to penalties where they breach continuous disclosure obligations pursuant to the provision of the Act.
To safeguard against exposure to such penalties, directors and officers should conduct themselves with the requisite due care and diligence to ensure that they and their company are acting in compliance with the continuous disclosure obligations under the Act.
Thorough and contemporaneous record-keeping should be maintained as to their decision-making processes where information is considered that requires, even in hindsight, market notification.
It is the burden of the person alleged to have been a party to a breach of continuous disclosure obligations to provide evidence to refute allegations of a breach. This means that careful record keeping can be vital for a director or officer defending an allegation that they have failed to discharge their duties under section 180 of the Act, or that their behaviour was reckless or negligent pursuant to section 674A(2) of the Act.
There are many things directors can and should do on an ongoing basis to ensure compliance with continuous disclosure obligations pursuant to sections 674(2) and 674A(2) of the Act, and their directors’ duties generally.
For further information about how to safeguard you and your company against the risks of contravening continuous disclosure obligations under the Act and directors’ duties generally, contact Cinzia Donald, Partner in Lavan’s Litigation and Dispute Resolution team.
 Australian Securities Exchange, ASX Listing Rules (at 9 March 2022), r 3.1, see also r 3.1B and 19.12.
 See Corporations Act 2001 (Cth) s 1311C(1), sch 3.
 See Ibid s 1311B, sch 3.
 Ibid s 1317E, 1317G.
 Corporations Act 2001 (Cth) s 674A(4).
 Ibid s 1317E(1).
 Australian Securities and Investments Commission v Rio Tinto Limited (No. 2)  FCA 184, .
 Ibid .