ETHIOPIA Law and Practice Contributed by: Getu Shiferaw, Awoke Mitku, Gutema Kajela Ejeta and Debora Belachew, Mehrteab & Getu Advocates LLP
association and the resolutions of general meetings of shareholders; • are responsible for managing the company according to the law, its memorandum of association and shareholder resolutions, including but not limited to overseeing financ - es, governance and risk management, pro - viding information to the supervisory board, preventing company damage and maintaining the required records; • are responsible for financial reporting, con - vening meetings, addressing capital loss, establishing reserve funds and pursuing restructuring or bankruptcy when necessary; • must act in good faith to promote the com - pany’s success and benefit the shareholders as a whole, considering long-term interests, employee and creditor interests and the com - pany’s impact on the community and environ - ment; • must exercise independent judgment, although pre-existing agreements or compa - ny 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 generally required to fulfil the foregoing duties, and they are also required to ensure that: • merger plans and reports are prepared prop - erly; • merger plans and reports are examined by an independent and impartial expert; • the merger plan is publicised via a newspaper having 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 man - date to one or more of its members regarding one or more specific matters, including repre - senting the company in a specific transaction. The board of directors may also decide to create committees, consisting of directors, 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 combinations in Ethio - pia. 8.3 Business Judgement Rule In principle, courts do not interfere in the judg - ment of the board of directors or CEOs in takeo - ver situations. If the board of directors and/or shareholders’ meeting decides to approve the takeover transaction in accordance with the minimum and mandatory conditions provided under Ethiopian law on matters including, but not limited to, quorum and majority vote, the courts normally uphold the decision. Therefore, Ethiopian courts follow the “business judgment rule” unless the rights of minority shareholders granted by law and company by-laws are vio - lated. 8.4 Independent Outside Advice The board of directors may seek expert inde - pendent outside advice concerning the compa - ny it is running on various matters, including in
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