The applicants filed a request for approval of a class action suit against a company traded on the Tel Aviv Stock Exchange ("Company") due to an alleged failure to timely file an Immediate Report (a current report filed with the Tel Aviv Stock Exchange and the Israel Securities Authority setting forth material information about the company) in connection with five real estate projects. Substantial losses were expected in connection with these projects, and when the Company ultimately filed an Immediate Report the value of the Company's shares significantly dropped.
The District Court ("Court") held that in certain situations a company must file an Immediate Report with respect to a possible future event, notwithstanding that there is uncertainty as to whether the event will actually occur. In order to determine whether an Immediate Report is required, the Bright-Line Rule or the Probability/Magnitude Approach is to be applied.
In many cases it is sufficient to apply only the Bright-Line Rule. The Bright-Line Rule measures whether the "point of no-return" has been reached, where it is more probable than not that a specific event will occur and information is transformed into material information. However, if a company reasonably believes that under the specific circumstances the Bright Line Rule is either inapplicable or would likely lead to material information failing to reach investors, it should apply the Probability/Magnitude Approach, which compares the possible future event's significance with the probability of it occurring. The Probability/Magnitude Approach may require filing of an Immediate Report even where it is less likely than it not that a future event will occur, in cases where the potential impact of it occurring would be very significant. The Court noted that discretion with respect to whether to file an Immediate Report should take into consideration the significance of the possible future event on investors, rather than on company management.
The Court held that information may be considered material and the subject of an Immediate Report even if quantitative data is not yet available, provided that financial implications from existing information can be extrapolated.
In this specific case, as of the time that the applicants alleged that an Immediate Report should have been filed, not only was quantitative data regarding the five projects not yet available to the Company, but financial conclusions were also not able to be drawn from existing information. Therefore, the Court did not approve the application to file a class action suit.
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