Analysis of Corporate Legal Issues for Rio Tinto in Australia

This report analyzes the corporate legal issues faced by Rio Tinto Limited in Australia, focusing on the responsibilities of directors and officers under the Corporations Act 2001. It examines a case where ex-executives were accused of fraud related to concealing financial losses from investors. The report explores the avenues open to law authorities, such as the Australian Securities and Investment Commission (ASIC), in investigating and pursuing legal action. It also references the case of ASIC v Cassimatis (No 8) [2016] FCA 1023, a similar case involving breach of director duties. The report highlights the powers of regulatory bodies, including investigation, interrogation, and the potential for criminal and civil proceedings. The analysis emphasizes the importance of due diligence, good faith, and acting in the best interests of the company to avoid legal repercussions.

Running Head: LAW OF BUSINESS ORGANIZATION
LAW OF BUSINESS ORGANIZATION
Name of the Student
Name of the University
Author Note

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Question One: What are the Corporate Legal Issues faced by Rio Tinto Limited in
Australia?
It can be said that he directors and officers of a company are required to act diligently
while exercising their powers in discharging the duties of the aforementioned parties as stated by
Section 180 of the Corporations Act 2001 (Corporation Act, 2001). It is also to be said that a
director or officer’s duty is to be assessed by how a reasonable person acting in the same position
would have discharged his duties. The officers and the directors of a company must take due care
while exercising their powers. The directors are required to
It would be established that a director or officer acted without due care or without
diligence if any reasonably person acting in the same position would not have acted in the same
way in the same circumstance. The powers exercised by the director or Officer has to be in good
faith as stated in Subsection 180(2) of the Corporations Act 2001. The directors and officers
must not exercise their powers in their self interests. It is also important to mention that the
powers exercised by the officers and directors of a company must be in the belief that the
company would benefit the most from it as stated in subsection 180(2d). In the case the parties
have accused of committing fraud. Section 596 of the Corporations Act 2001 states that officers
of a company would be considered to have acted fraudulently if his actions are intended to
defraud the company or its creditors.
In this chosen case the ex executives of the company Rio Tinto had been accused of
committing fraud by the U.S Securities and Exchange Commission. The names of the ex
executives who have faced the allegations are Tony Albanese and Guy Elliot. The
aforementioned parties have allegedly concealed from its investors the actual financial status of

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the company (ABC News, 2018). They had also concealed an unsuccessful deal in which Rio
Tinto suffered a huge loss amounting to three billion dollars from the investors which had
occurred under the watch of the aforementioned parties. After analysis of the case it can be said
the parties had been additionally charged with fraud as their actions were held to intentionally
defraud the investors by concealing the loss from them. The aforementioned parties had failed to
act diligently and failed to take due care to inform the investors of the loss suffered. It can be
stated that they had also failed to act in good faith and their actions were not in the best interests
of the company.
Question Two: What avenues are open to the law authorities and the Directors in relation
to this case?
The power of governing and inspecting whether the provisions of the Corporations Act
2001 are correctly implemented is granted to the government body, Australian Securities
Investment Commission. The Australian Securities Investment commission derives authority
from the Australian Securities and Investment Commission Act. The U.S authorities can appeal
to the aforementioned government body to conduct the investigation of the details of the case.
The aforementioned commission will eventually inspect the whether the provisions as stated in
the Corporations Act 2001 have been violated or not. The other government bodies which have
been granted the powers to conduct investigations on corporations are Australian Competition
and Consumer Commission and the Australian Taxation Office. It can be said that the
aforementioned government bodies have been granted a broad range of powers (Shekhar &
Zheng, 2017). The powers of the aforementioned government bodies include conducting
investigation in order to find evidence to pursue law enforcement.

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The aforementioned Australian Security and Investment Commission has the powers to
interrogate the personnel of the company to collect necessary information, scrutinize the books
of production to find any discrepancy in the records, and inspect the premises of the company
(Gilligan & Bird, 2015). It is to be stated that the directors or the officers being interrogated do
not possess the right to remain silent. However the parties are provided with immunity which
prohibits the testimony given by the parties to be exhibited in the criminal and civil proceedings
against the aforementioned parties. It is to be mentioned that after the investigation has been
conducted the regulators have the power to pursue law enforcement (Bainbridge, 2015). In this
case it can be said that the US Securities and Exchange Commission can file an application for
appeal to the ASIC to conduct investigations and purse law enforcement. They can even pursue
the ASIC to enforce criminal and civil proceedings against the parties. The ASIC can pursue law
enforcement to freeze the assets of the company by issuing interim and injunctive orders.
However, it is important to mention that the order of injunction can be received within twenty
four hours of its application in the court at the discretion of the court. The provision of
Corporation Act 2001 has its jurisdictions in extraterritorial areas.
Question 3: An earlier major decided case where similar issues had arisen
The case ASIC v Cassimatis (No 8) [2016] FCA 1023 is a remarkable one and is relevant
to the chosen case study. In this case it was alleged that the parties, Mr. and Mrs. Cassimatis had
committed breach of duty of care under section section 180(1). This section states that, it is the
duty of the director or officer of a company to take due care and act diligently. It is to be
mentioned that Mr. and Mrs. Cassimatis started a financial planner company called Storm
Financial. They had come up with a strategy or scheme which aimed to take borrow money from
the investors. The Scheme developed by Cassimatis was not clearly communicated to all the

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investors. It involved manipulating the investors to invest more than they actually desired. All
the investments were made for a period of five years. However, the strategy invented by
Cassimatis involved taking loans against security, obtaining marginal loans and investing the
funds in further index funds. The target of the operation of Storm Financial was to create a
reserve of cash. In the following year Storm Financial went into liquidation with a debt of over 3
billion dollars investment funds. It was later found out by the liquidator that the company lacked
the financial capacity to monitor and manage the debts of the clients. It is also to be stated that
Cassimatis had not informed the investors about the deterioration of the value of investments.
According to the report of the ASIC, Mr. and Mrs. Cassimatis were responsible for the loss
suffered by the company. It was found that the aforementioned parties withdrew $500,000 from
Storm Financial every year as dividends till the time the company went into liquidation. The
report of ASIC furer claimed that the parties had failed to give reasonable advice to the investors
of Strom Financial. The aforementioned parties were alleged of failing to take steps reasonable
in nature to prevent the loss incurred by the company. The ASIC appealed for the following
demands in the court:
 Mr and Mrs Cassimatis must be disqualified to act as managers in a company
 The license of Australian Financial Service must be ceased from them
 Mr. and Mrs. Cassimatis must pay penalties as they breached their duties as directors.
The court held that any reasonable man would have taken the necessary steps to prevent
incurring the loss and would have provided advice related to investment to the investors. In this
remarkable case it was held by Justice Edelman that breach of duty of a director of a company
will not constitute breach of duty of the company itself.

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Reference List:
ASIC v Cassimatis (No 8) [2016] FCA 1023
Bainbridge, S. (2015). Corporate Law. West Academic.
Corporations Act 2001. (2018). Legislation.gov.au. Retrieved 4 January 2018, from
https://www.legislation.gov.au/Details/C2017C00328
Gilligan, G., & Bird, H. L. (2015). Financial Services Misconduct and the Corporations Act
2001.
Rio Tinto, former execs face fraud charges over African coal losses. (2018). ABC News.
Retrieved 4 January 2018, from http://www.abc.net.au/news/2017-10-18/rio-tinto-and-
former-bosses-charged-with-fraud-over-mozambique-/9060898
Shekhar, C., & Zheng, J. (2017). Corporate Fraud, Local Connections and Directors.