Liability Towards the Company and Shareholders
Under Ethiopian Commercial Code Proclamation No. 1243/2021, managers are strictly responsible for acts contravening due diligence standards or engaging in fraudulent activities. The commercial code further establishes that managers are liable for damages caused by breaches of duty to the company, shareholders, or third parties. In this note, manager of the company is a responsible for any inadequacy of assets during bankruptcy proceedings if the inadequacy is the result of the manager’s fault or failure to properly discharge its obligations or failure to exercise the required level of due care and diligence, which inter-alia, includes:-
- Gross negligence in failing to file for bankruptcy within 45 days after cessation of payments;
- Continuing loss-making operations negligently;
- Misusing company assets for personal gain.
Criminal liability also applies under the 2004 Ethiopian Criminal Code, particularly when a manager’s actions or omissions lead to offenses beyond corporate liability principles.
Liability towards Third Parties
The Commercial Code does not explicitly address the liability of managers toward third parties. However, any third party affected by a company manager’s actions has the right to initiate legal proceedings against the manager, the company, or both, depending on the nature of the liability. Legal principles from agency, contract, tort, and criminal law define the scope of liability, ensuring that managers are held accountable for misconduct that harms stakeholders.
Conclusion
Ethiopian law imposes significant responsibilities on company managers, ensuring they act with diligence, integrity, and adherence to legal obligations. A failure to meet these obligations can result in civil and criminal liability, reinforcing the importance of properly exercising the obligations and responsibilities managers are mandated.