As part of its endeavor to streamline public reporting and ease some of the regulatory burden imposed on publicly listed companies, the Israeli Securities Authority (ISA) this week introduced an amendment to the Securities Regulations governing periodic and immediate reports. The amendment deals with a number of issues, including reporting on agreement negotiations and the company’s right to delay public reporting.
The Previous Status
Prior to the recent amendment, in certain instances, a TASE listed public company is required to publish an immediate report on agreement negotiations, even before the binding agreement is entered into.
The company’s board may resolve to delay the publication of the immediate report, as long as the relevant information has not been made public, and provided that either – the publication of the report may jeopardize the completion of a transaction or action to which the company is party, or if there is concern that publication of the report will jeopardize the consummation of the transaction or have a significant adverse effect on its terms.
The current regulations raise a number of difficulties. One is determining the particular point in time when the information becomes material, and therefore must be publicly reported, keeping in mind the desire to not undermine the chances of concluding the transaction. Similarly, determining when disclosure may have “significant adverse effect” on the conditions of the transaction is also difficult to implement.
One of the purposes of the recent amendment is to enable reporting companies to delay public reporting on any agreement negotiations. A company will be allowed to delay such report until it enters into an agreement, including a “preliminary agreement”. The amendment clarifies that a “preliminary agreement” may also be an oral agreement, provided it includes the key terms of the transaction.
The new authority to delay reporting on any agreement negotiations is in addition to the previous right of companies to delay public reporting. For example, the amended regulations do not derogate from public companies’ right to delay reporting following the engagement in a “preliminary agreement”, in the event that there is concern that public disclosure may jeopardize the consummation of the transaction or have a significant adverse effect on its conditions.
The amended regulations maintain the existing overriding rule, whereby reporting may only be delayed for as long as the information is not made public. Once the negotiations or the transaction are leaked to the public domain, the company is required to issue an immediate report.
Following the amendment, the regulations now also list those circumstances where public companies are required to issue reports on material agreement negotiations preceding certain voluntary securities transactions, including prior to the publication of a tender offer, the publication of a prospectus (excluding a shelf prospectus), or a merger proceeding.
Though not addressed by the regulations, this recent amendment places further emphasis on the distinction between the point in time when a listed company issues an immediate report on a contemplated agreement, and the time when the same future agreement should be considered “insider information”. In other words, the knowledge of particular negotiations might constitute “insider information” even before the reporting obligation arises with respect to those negotiations.
In this regard, as soon as a company chooses to delay a report, the information should be deemed “insider information,” and should preclude anyone in possession of that information from executing transactions with the company’s securities.
The explanatory notes to the recent amendment include the ISA’ position, whereby there are instances where negotiations do constitute “insider information”, but a reporting obligation in respect thereof does not yet apply. This position of the ISA is in line with the recent opinion of the Tel Aviv District Court, which considered an appeal against the decision of the Administrative Enforcement Committee with regard to the publication of a tender offer by Africa-Israel Industries Ltd. while in possession of non-public information on material negotiations of its subsidiary company.