The panel also did not rule that a failure to repay credit in non-bank credit companies is always an event in the ordinary course of business that does not establish a reporting obligation. As stated above, the determinations in the decision were based on its circumstances and it is not possible to deduce from them any general determination that will apply to corporations engaged in the provision of non-bank credit.
- It was further argued that the Enforcement Committee also did not err in its determination that the collateral provided to the company significantly reduced the risk to which it was exposed in light of the breach. The ISA's argument that the realization of collateral is not necessarily simple is tantamount to raising professional claims on matters that are not within its area of expertise. The Authority's attempt to draw conclusions about difficulty in exercising the guarantees from events that occurred in later stages will also not succeed. Especially when a retrospective examination of the matter establishes Lorenzi's position, since in practice, two months before the original repayment date, the borrower actually repaid the principal amount.
- As for the statements of the lawyers, it was claimed that their statements were examined by the committee on the basis of the totality of the circumstances and the evidence presented to the panel, and were explicitly referred to in a decision in which it was determined that they did not tip the scales.
- The use made by the Enforcement Committee's panel of the post-factum test was also appropriate. The Authority's position that it should not be used where it is a low-tradable stock is baseless and is not supported by a professional opinion.
- Lorenzi also came out against new claims raised by the Israel Securities Authority as establishing a high-quality materiality that requires reporting. It was noted that the claim that this was a "controlling shareholder transaction" did not arise in the administrative enforcement proceeding, and it was even argued that Dakma should be regarded as a "conduit" only, and the company as the one who made the loan available to the borrower. The argument for the obligation to publish an immediate report by virtue of Regulation 37A2 to the Reporting Regulations, an argument that was not raised in the administrative statement of claims, and when the Authority asked to raise it, it was rejected by the chairman of the panel. Beyond what is required, it is argued that the merits of the matter also do not apply to the regulation in our case.
- The company announced that it was joining Lorenzi's reply and that his claims should be seen as its claims.
The Parties' Arguments in the Hearing
- The ISA's counsel reiterated the main points of the ISA's position that since this is a material loan, which is also the only loan given by the company, as soon as there is a breach on the part of the borrower, the company must report it immediately. The company could have reported the breach and at the same time said that it is convinced or assesses that given the existing collateral, the company estimates that there will be a full repayment of the loan. Collateral cannot justify the lack of reporting, since past experience shows that even good quality collateral may turn out to be difficult to realize or less valuable. The emphasis is on the substance of the loan from the company's point of view, and from the moment there is a breach on the part of the borrower in such a breach, the obligation to report immediately arises.
- The ISA's counsel emphasized that the matter should be examined from the point of view of the reasonable investor, and not from Lorenzi's point of view and his assessments regarding his chances of success in dealing with the violation. It was argued that in order for it to be determined that the matter has a material impact on the affairs of the corporation, it is sufficient that the borrower is in breach of the agreement, so that economic enforcement measures such as the realization of liens must be initiated. The Authority's position is that the corporation is not supposed to wait for a "disaster" to occur, and it must report an event that could and will have a material impact (p. 47, paras. 8-10). The report to the public is intended so that the reasonable investor can finance his actions, and he needs to know about the violation in order to make a decision if he is no longer interested in investing in the company at the initial stage of the violation.
The ISA's counsel noted that there is no room for a distinction between the "small loan" in the amount of ILS 342,000 and the original loan, since both were given to the same borrower.
- It should be noted that during the hearing, counsel for the Authority retracted the position that if the petition regarding the existence of a reporting obligation is accepted, the court will also be able to determine the existence of the other elements of the violation. It was argued that if this is the case, the Authority's position is that it would be appropriate to return the discussion to the Committee (p. 57, paras. 25 to p. 58, s. 2).
- Lorenzi's counsel referred to the fact that in the company's reports, the investors were provided with information about the collateral provided in favor of the loan, and argued that in the circumstances of the case, the breach could not have had a material impact on the company. In this context, she noted the clear provisions of the loan agreement, which included the ways in which the collateral would be realized and the borrower would bear all the costs involved. It further noted that in the circumstances of the case, the violation did not constitute a "signal" of the feasibility of "disaster"In the words of counsel for the Petitioner, in this regard she also referred to the opinion of the expert on behalf of Lorenzi, which was submitted to the Committee.
It was argued that in the life of the company that provides non-bank credit, non-payment of interest on a limited scale or a breach of a small loan is not something that is outside the company's business or deviates from the normal course of business. For this purpose, collateral, arrangements, agreed compensation and arrears interest are intended (p. 80, paras. 23-28). The company is not obligated to reflect everything that is happening to the investing public – insofar as the ISA sought to claim that this was a "red flag", a kind of signal of the company's collapse, then it had to prove this claim.
- Lorenzi's counsel also argued that filing the petition on behalf of the chairman of the authority while he was not in office, not attaching documents and "blackening" statements regarding Lorenzi amounted to a lack of cleanliness on the part of the authority.
Discussion and Decision
- I will preface by saying that after examining the arguments of the parties that were argued at length, I have reached the conclusion that there is no reason to dismiss the petition in limine.
As to the substance of the petition, after examining all the considerations and the unique circumstances of the case, I have come to the conclusion that the committee lawfully determined that in the course of the proceeding before it, the authority did not meet the burden imposed on it to prove that the respondents breached the duty to report. Below I will explain the reasons for my decision.