Managing multinational corporate insolvencies: An appraisal of Ethiopia's new insolvency regime

Abstract The increasing complexity and frequency of multinational corporate bankruptcies pose challenges for insolvency frameworks globally. Cross‐border corporate insolvency presents numerous complex legal issues, including the choice of forum (jurisdiction), determination of the applicable law for the insolvency proceedings, recognition and enforcement of foreign insolvency judgements, cooperation and coordination of insolvency proceedings initiated concurrently in multiple jurisdictions, the access and participation of foreign creditors and their representatives in ongoing insolvency proceedings in another jurisdiction and the protection of creditor rights, among others. Despite the widespread recognition of these legal challenges by nearly all nations globally, the responses to them vary from one jurisdiction to another. Recognising the undesirable consequences of diverse national laws and approaches, key international and regional legal instruments have been developed to establish a harmonised cross‐border insolvency framework. In 2021, Ethiopia updated its decades‐old Commercial Code of 1960, among other reforms, to implement an insolvency regime that promotes trade and investment. Book III of the Commercial Code, Proclamation No. 1243/2021 (the Revised Commercial Code, RCC), titled ‘Preventive Restructuring, Reorganization, and Bankruptcy Law’, aims to address financial difficulties and rescue distressed businesses by implementing many legal rules from MLCBI. In the area of cross‐border corporate insolvency, the new regime adopts a modified universalism approach, classifying insolvency proceedings into main and secondary/territorial categories. The ‘centre of main interest’ (COMI) test is utilised to determine international jurisdiction for Ethiopian courts in commencing foreign main insolvency proceedings. On the other hand, Ethiopian courts may initiate territorial insolvency proceedings if a debtor has an establishment in Ethiopia, focusing on assets situated within the country. The new regime also addresses the recognition and enforcement of foreign judgements in bankruptcy, detailing the necessary conditions and documents for this process. The Ethiopian insolvency regime, despite improvements, still lacks explicit and adequate legal provisions for several important aspects of cross‐border corporate insolvency, such as cross‐border judicial cooperation, access and participation of foreign creditors and their representatives in insolvency proceedings commenced before an Ethiopian court, outbound recognition of insolvency proceedings initiated before an Ethiopian court over a debtor with its COMI in Ethiopia, etc. Addressing these shortcomings could enhance the regime's efficiency and effectiveness in managing cross‐border corporate insolvencies. This article evaluates the effectiveness of Ethiopia's new insolvency law in managing multinational corporate insolvencies by identifying key legal issues and suggesting improvements.