ETHIOPIA Law and Practice Contributed by: Getu Shiferaw, Mehrteab Leul, Michael Sebsibe and Debora Belachew, Mehrteab & Getu Advocates LLP (MLA)
board, preventing company damage and maintain - ing the required records; • are responsible for financial reporting, convening meetings, addressing capital loss, establishing reserve funds and pursuing restructuring or bank - ruptcy when necessary; • must act in good faith to promote the company’s success and benefit the shareholders as a whole, considering long-term interests, employee and creditor interests and the company’s impact on the community and environment; • must exercise independent judgment, although pre-existing agreements or company resolutions may guide their actions; and • must act with care, skill and diligence, where they can be held liable for damages caused by failure to do so. Concerning business combinations, directors are gen - erally required to fulfil the foregoing duties, and they are also required to ensure that: • merger plans and reports are prepared properly; • merger plans and reports are examined by an inde - pendent and impartial expert; • the merger plan is publicised via a newspaper hav - ing nationwide circulation; and • the shareholding of the combined business is properly restructured. The chairperson of the board of directors is required to sign the merger plan and merger reports. Generally, directors’ duties are owed not only to the shareholders of a company, but also to all stakeholders. 8.2 Special or Ad Hoc Committees The board of directors may give a special mandate to one or more of its members regarding one or more specific matters, including representing the company in a specific transaction. The board of directors may also decide to create committees, consisting of direc - tors, to review matters and recommend a course of action as and when it deems this appropriate. In doing so, it shall determine the composition and powers of the committees that it establishes without exceeding the powers vested in the board itself. The board is also required to establish an audit committee consisting of its members. However, even though it is possible
under Ethiopian law, it is not common to establish special or ad hoc committees in business combina - tions in Ethiopia. 8.3 Business Judgement Rule In principle, courts do not interfere in the judgment of the board of directors or CEOs in takeover situations. If the board of directors and/or shareholders’ meet - ing decides to approve the takeover transaction in accordance with the minimum and mandatory condi - tions provided under Ethiopian law on matters includ - ing, but not limited to, quorum and majority vote, the courts normally uphold the decision. Therefore, Ethio - pian courts follow the “business judgment rule” unless the rights of minority shareholders granted by law and company by-laws are violated. 8.4 Independent Outside Advice The board of directors may seek expert independent outside advice concerning the company it is running on various matters, including in business combina - tions. The directors may seek outside advice from a legal counsel, financial advisers and tax advisers. The outside advice may pertain to: • the legality of the business combination; • the legal capacity of the parties to execute docu - ments; • the valid establishment of the target companies; • the assets and liabilities of the target companies; • fulfilment of the documentation requirements; • the tax implications of the business combination transaction; and • other general due diligence reports. 8.5 Conflicts of Interest A director shall be dismissed from his or her position where it is proven that they used their powers in such a way that a conflict of interest arose with the com - pany, and they directly or indirectly obtained undue benefit. A director of a company must avoid a situa - tion in which he or she has a direct or indirect interest that conflicts, or may conflict, with the interests of the company. If a director is found to violate these legal require - ments, either the board of directors or the general
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