ETHIOPIA Law and Practice Contributed by: Sisay Habte, Tibebe Zewdu, Michael Mengistu and Helina Bezabih, TBeST Law LLP
4.7 Responsibility/Accountability of Directors Directors are accountable to the general meeting of shareholders. They are at all times required to act in good faith and loyalty to the best interest of the company and for the benefit of the share - holders as a whole. 4.8 Consequences and Enforcement of Breach of Directors’ Duties The company may enforce a breach of the duties of the directors of the company only with a reso - lution of the general meeting of shareholders. If the company fails to implement such a resolution within three months, shareholders representing 10% of the capital may jointly institute proceed - ings in the name of the company. Additionally, shareholders who have sustained damages from a personal injury directly owing to the fault or fraud of a director may bring legal action directly. 4.9 Other Bases for Claims/Enforcement Against Directors/Officers Under Ethiopian law, any agreement protect - ing the directors from liability is of no effect regardless of its form – ie, in the memorandum of association or a contract with the company. The company may, however, maintain an indem - nity insurance to protect board members from liability. Additionally, the company may maintain a special fund for the legal defence of its direc - tors against actions by administrative bodies, creditors or shareholders subject to refund if the directors lose the case. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers The general meeting of shareholders is required to fix and approve the annual remuneration of directors in a lump sum. The ordinary general meeting of the company may grant directors
of the company regardless of whether the com - pany used the same. Directors have a duty to disclose any situation as soon as the existence of the situation is known that may be or lead to a conflict of interest. The director shall disclose the nature and extent of that interest to the other directors. A director is also prohibited from receiving a gift or any oth - er type of benefit from a third party for being a director. Given the clear conflict of interest, directors are restricted from voting on matters like a proposed agreement between the director and the company or any other person where the director may derive an essential benefit from the transaction. 4.6 Legal Duties of Directors/Officers Directors and officers of a company have the following legal obligations under Ethiopian law. • Duty of care and diligence – directors are required to discharge their duties with care, skill and diligence and may be liable for failure to do so. • Duty to exercise independent judgement. • Duty of loyalty – directors must act in a way that promotes the success of the company and benefit all shareholders. • Restriction on private trade – unless expressly permitted by the general meeting, directors are restricted from partnering in rival business or competing against the company directly or indirectly. • Duty to avoid conflict of interest – directors must avoid situations that have or may have direct or indirect conflict of interest with the company.
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