Preventive Restructuring Procedure as an Alternative to Bankruptcy under the Revised Commercial Code of Ethiopia

Abstract

Ethiopia recently adopted Proclamation No. 1243/2021, updating its decades-old Commercial Code. The previous legislation has been altered in several ways by the new one. Book III of the previous code governing bankruptcy is one of the books that has experienced significant revisions. The new legal regime recognizes alternatives to bankruptcy proceedings to address the lack of pre-bankruptcy debt collection options. The aims of these processes include, but are not limited to, ensuring legal clarity, maximizing the value of the estate, and fostering economic stability through prompt, efficient, and effective procedures. A court-supervised preventative procedure for financially distressed debtor firms is one of those processes. This procedure allows debtor businesses to enter into court-supervised debt restructuring negotiations and settlements with their creditors without having to interrupt their normal course of business. Looking at the content, spirit, and organization of the section of the Code governing preventive debt restructuring, it is not incorrect to argue that it is modeled after the European Directive on Restructuring and Insolvency of 2019 (EUR 2019/1023) and the UNCITRAL Legislative Guide on Insolvency Law. This contribution makes a systematic analysis of this procedure without going too technical, to create a general understanding of it and thereby contribute to its possible use in practice by potentially interested businesses.