Recently, the Supreme Court handed down a ruling that constitutes a precedent: loan agreements which an entrepreneur offered to public investors are tantamount to “securities,” and therefore, require the publication of a prospectus, pursuant to the provisions of the Securities Law.


Kedem Building Reinforcement and Renovation Group Ltd. is a National Outline Plan 38 project development company. Due to difficulties in obtaining bank financing for projects of this kind, the company sought financing for the project from public investors in consideration of an annual return.

Lenders were offered five different project financing tracks that they could negotiate with the company. The tracks differed according to the nature of the activity they would be financing in the project, the repayment dates and the rate of the return. Furthermore, the company undertook not to borrow money from a number of lenders exceeding 35 investors in each of the tracks.

In light of the provisions of section 15 of the Securities Law, which prescribes that an offering of securities to the public requires the publication of a prospectus, the company applied to the Israel Securities Authority and inquired whether the financing format requires the publication of a prospectus.

Section 15.A.(a)(1) of the Securities Law allows an exemption from the obligation to publish a prospectus in the instance whereby securities are being sold to a number of investors not exceeding 35 during the twelve months preceding that offering. A “security” is an instrument that cumulatively fulfills the following criteria: (a) it is a certificate; (b) issued in a series; (c) by a company or other corporation; and (d) the certificate confers a right to the holder by virtue of the holding.

The ISA reasoned that, considering the purpose of the securities laws, the term “series” should be interpreted broadly and that all of the loan agreements should be deemed a single series that was offered to more than 35 investors and that, therefore, a prospectus is required.

The court divided the issue into three key questions: Does the format offered by the company constitute a “series” for the purposes of the obligation to publish a prospectus? Insofar as at issue is indeed a series, is this a single series or a number of series? Insofar as at issue are different series, should the investors in the different series be counted together or according to each series separately?

The court deliberated the first two questions at the same time and ruled that, on the one hand, at issue is a “series,” as this term is defined in the law, while, on the other hand, considering the significant difference between the series being offered (such as a difference in the ROI of up to 75%), at issue are five series and not a single series.

On the matter of the method for counting the number of investors, the court ruled that, even though it had ruled that at issue are five different series, in light of the purpose of the securities laws, the investors in all of the series should be counted together.

The Supreme Court ruling in the Kedem case constitutes a precedent that could have a direct impact on various bodies operating in the field of investment recruitments, and especially on the planning and implementation of financing strategies by corporations.