The Regulation of Business Unit Divestiture under the Ethiopian Commercial Code
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Date
2025-01-01
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Addis Ababa University
Abstract
Divestiture is a widely practiced and strategically significant form of corporate restructuring, involving the divestment, sale, disposal, or transfer of assets, facilities, product lines, subsidiaries, divisions, or business units. Companies adopt different forms of divestiture—such as sell-offs, spin-offs, and carve-outs—to optimize resource allocation, enhance financial performance, and strengthen their market positioning by shedding non-core or underperforming assets. Despite its prominence globally, the legal recognition and regulation of divestiture as a corporate restructuring strategy remain unclear in Ethiopia. This thesis investigates the adequacy of Ethiopia’s legal framework in governing business unit divestitures. Through a qualitative/doctrinal approach, it critically examines the provisions of the Ethiopian Commercial Code on mergers and divisions, alongside other relevant sectorial legislations, to assess whether such provisions sufficiently address the concept and complexities of divestiture. The findings highlight a significant regulatory gap in the division section of the Commercial Code. The provisions, as currently existing, fail to align with the unique nature of divestiture and are inadequate to comprehensively address its legal and procedural requirements. As a result, Ethiopia’s legal framework on divestiture remains insufficient, posing challenges to businesses seeking to utilize this strategy. The thesis concludes by recommending amendments to the Commercial Code to include a distinct and comprehensive framework for regulating divestiture. These amendments should, however, align with global best practices to ensure effective governance of divestiture and support Ethiopia’s evolving business landscape.