Application of Bankruptcy Proceedings to Financial Lease under the Ethiopian Laws: Analysing the Challenges and Prospects

Abstract

The New Commercial Code (hereinafter NCC) of Ethiopia draws the objectives of bankruptcy proceedings to arrange liquidation of the debtor's business that maximizes the values of the assets available for the creditors. NCC has established the trustee and incorporated the enabling bankruptcy provisions to achieve these objectives. Once a bankruptcy case is filed, bankruptcy provisions deprive the debtor of pursuing any business activity. It automatically creates an estate with a legal personality different from the debtor. An automatic stay ends all transactions undertaken before filing a bankruptcy case. An ipso facto clause that accelerates, terminates or withholds the performance is revoked. The legal and judicial responsibility of the debtor is delegated to the trustee. Consistent with the NCC's bankruptcy provisions, a trustee is empowered to terminate ongoing financial leases. Despite these objectives and the bankruptcy provisions, the Capital Goods Lease Business (hereinafter CGLB) requires the "full payout, non cancelability and forces the trustee to remain performing financial leases. This indicated that the bankruptcy provisions of the NCC are inconsistent with the functional nature and bankruptcy provisions of the CGLB. Thus, this thesis analyzed the challenges and prospects of applying bankruptcy proceedings of the NCC to financial leases. Qualitative research methods and data collection tools were used to understand the practical aspects. The finding of this research has revealed that functionally the bankruptcy provisions of NCC are incompatible with the full payout, non-cancelable, and responsibility of the trustee to continue performing the financial leases of the CGLB. The practitioners' inconsistency and awareness constraints rendered the application of bankruptcy proceedings of the NCC to financial leases business insufficient. Owing to these, the thesis recommended the inconsistency of the bankruptcy provisions in the NCC and the CGLB proclamation for amendments.