The Materiality of the Information in Our Matter
- The information that is examined in our case is the non-payment of some of the monthly interest payments on the original loan and the non-repayment of the small loan principal.
The chairman of the panel ruled that the information "did not have any 'material impact on the corporation' as required by Regulation 36(a)..." (Section 42 of the decision, emphasis in original, M.R.). Kastiel and Dekel-Shafrir, who joined his conclusions, summarized their position according to which "we are of the opinion that the ISA did not meet the burden of proving that the information regarding the breach of the loan agreement, at the relevant times, amounts to material information that requires reporting to the capital market" (paragraph 14 of their decision).
"Quantitative" Materiality
- The committee determined that"The scope of the actual violation is not substantial" (Paragraph 5 of the opinion of Kastiel and Dekel-Shafrir; see also paragraph 44 of the panel chairman's decision, who noted, with respect to the entire violation, that it was "minor in the circumstances of the case").
This was also the position that the Authority presented to the committee in the framework of the proceeding, while clarifying that in its view "A breach of contract from a quantitative point of view is not material to the company..." (Transcript of the hearing of July 26, 2022, page 7, s. 5), Appendix 4 to Lorenzi's reply).
- However, in the framework of the petition, the ISA claimed that the amount of the violation is "significant" in relation to the scope of the large loan even in quantitative tests.
In my opinion, there is no reason for the Authority to change its position with respect to the elements of subsistence in the framework of the petition. In any event, even on the merits of the matter, the argument of the authority cannot be accepted. First, the scope of the violation to which the Authority refers in this claim is the total balance of the debt that stood in January 2019 (paragraph 14 of the Administrative Petition). However, it was not claimed that the quantitative scope was material in relation to the company's data such as capital, cash flow, gross profit or all of its assets. More than necessary, I will note that the Authority's argument is that the company's reporting obligation arose as early as October 26, 2018, the date from which the borrower was in breach (paragraph 21 of the administrative statement of claims). In any event, it also had to argue its "quantitative" argument in relation to the scope of the violation at that time.
- The petition also claims that as long as there is a failure in the payment of the payments, it affects the company's cash flow and its ability to continue its business activity. This claim was not made by the Authority in the framework of the administrative proceeding, and it was not proven before me. First, it appears that the Company's immediate report on March 4, 2018 indicates that it made it clear that for its ongoing needs and for the financing of its ongoing business activity, it would use the proceeds received from the allocation of shares to Dakma, the immediate scope of which was ILS 7.3 million (Appendix 15 to Lorenzi's response, paragraphs 4, 9 and 13). In other words, according to the company's reports, the cash flow financing of its operations is not based on or dependent on the repayment of the loan interest. Second, even though the claim of cash flow difficulty was not raised by the ISA, Lorenzi's counsel insisted on the absence of the effect of non-payments on the company's cash flow (minutes of the hearing before the committee on September 5, 2022, page 6, paras. 5-8, Appendix 5 to Lorenzi's response; page 76 of the minutes of the hearing in the petition, paras. 29-34). The Authority did not address these figures, which on the face of it are inconsistent with its claim.
- In light of the aforesaid, I am of the opinion that there is no room for intervention in the factual determination of the Enforcement Committee that the scope of the violation was not material from the "quantitative" aspect.
"Quality" essentiality