Ethiopian Review

Addis Ababa — The 11th Civil Bench of the Federal High Court declared the Ethio Investment Group (EIG) bankrupt on June 26, 2009. The series of rulings occured after an appeal was made by Selam Bus S.C., claiming Ethio Investment reneged on a contract signed between the two parties.

The Court adjourned the case until July 13, 2009, ruling that Selam Bus must nominate a commissioner and a trustee for the liquidation of EIG’s assets.

The case is considered exceptional since Ethiopian bankruptcy laws, found in the last chapter of the Commercial Code, are the least known and practiced parts of the legal system, according to Zekarias Kena, lecturer at the Law Faculty of Addis Abeba University. Instead, there is a huge reliance by lenders on foreclosure law. It is only recently that bankruptcy cases, such as filed by Selam Bus, began to increase.

Selam Bus claims that EIG is insolvent, and unable to pay its debts to third parties. It also alleges the vehicle importer has failed to deliver 15 buses, each with 48 seats, procured in August 2007.

EIG, sole importer to Ethiopia of automobile brands such as BMW, Land Rover, Scania, and Ford, has lately been going through rough times.

Established in March 1999 by 19 companies and six businessmen, the company suffered losses of over 255.2 million Br when its accounts were closed in June 2007, according to an audit report by external auditor, and annexed by Selam Bus. Its losses eclipsed the 31.9 million Br paid up capital the shareholders raised when they acquired the company from the Commercial Bank of Ethiopia (CBE).

Managed by Worku Megra, one of the three partners in the Star Business Group, EIG laid off approximately 173 staff members beginning July 7, 2009, sources disclosed. Nearly 61 of these employees have sued the company, while the remaining 112 employees have submitted a letter for a class action suit to the Federal First Instance Court of the Kera Labour Bench on June 26, 2009.

Banks have been all over EIG’s properties held as collateral. Recently, the CBE was unable to attract interested bidders when it attempted to auction the company’s property on 7,404sqm, located in central Addis Abeba. Another bank, the Bank of Abyssinia, had applied to be subrogated (substituted) in place of EIG to claim the latter’s credit from its debtors, claiming 59 million Br loans in default. The Ninth Civil Bench of the Federal First Instance Court ruled in favour of the Bank on April 8, 2009.

First established in 1996 by the Tigray Development Association (TDA), and involved in the public transportation sector, Selam Bus accuses EIG of failing to deliver 15 Scania buses after promising to import them from Brazil. The buses were valued at 23.9 million Br, of which 7.1 million Br was paid in advance, according to the contract signed between the two parties and submitted to the court.

The lawyer representing Selam Bus argued that EIG is insolvent and should be declared bankrupt in order for their client to claim more than 20 million Br.

These are the claims that led the Judge at the 11 Bench, Rehila Abas, to pass the declaration of bankruptcy by taking judicial notice that CBE and Bank of Abyssinia have announced a sale by auction of the properties that EIG mortgaged for loans. The Judge said this proves that EIG was not able to pay its debts for the banks.

“I am not surprised,” said Wondawek Ayele, a lawyer of EIG. “It is obvious the company was bankrupt in practice.”

The Federal First Instance Court previously froze EIG’s assets in September 2008, following appeals by the Bank of Abyssinia. Worku was not available for comment.

- By ADDISU ALEMNEH | Addis Fortune