Liquidation presents a formidable challenge to foreign and resident charities in Ethiopia. This commentary, drawn from the writer's experience as legal counsel to such charities, aims to explain the process in a simple and orderly manner. It also offers useful tips for charities facing liquidation.

1. Liquidation of a Charity under Ethiopian Law
Samuel Teshale Derbe, PhD, Attorney at Law∗
April 25, 2016
This commentary discusses liquidation of property in connection with dissolution
of a charitable organisation or institution, especially of the foreign or resident
variety. The writer also indicates ways of navigating the process of liquidation
with relative ease 1
.
1 Grounds for dissolution
According to the Asset Clearance,Transfer and Liquidation Directive No.6/2011,
the Charities and Societies Agency (hereinafter,CSA) may dissolve a foreign or
resident charity where such charity :
• submits an application for dissolution ,
• is insolvent,or
• is found liable for breach of law or for non-compliance with CSA’s orders
or decisions.
Foreign and Ethiopian Resident charities are not legally entitled to appeal against
an order for dissolution issued by the Board of CSA.
2 The Liquidation process
2.1 Appointment of Liquidators
The CSA appoints liquidators within 15 days from the date of issuance of the
dissolution order . The liquidators may be drawn,at the discretion of CSA, from
employees of the charity in liquidation or of the CSA , Sector Administrators or
regional government bureaus .
∗LL.B, Addis Ababa University, LL.M , Amsterdam University, PhD, University of
Amsterdam.
1The content of this article is provided for general information purposes only and does not
constitute legal or other professional advice or an opinion of any kind. Readers are advised to
seek specific legal counsel by contacting the writer (or their own legal consultant) regarding
any specific legal issues.
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2. 2.2 Handover of property
The liquidators embark on their duty by examining documents of title, bank
accounts, audit reports, inventories,debt instruments, etc. in order to appraise
the financial position of the charity. Following this documentary examination,
the liquidators formally take possession of the assets of the charity.
2.3 Valuation and Preservation of Assets
The liquidators seal the assets which are under their custody and order the
immediate sale of perishable goods . They shall also undertake the valuation of
the assets of the charity with the assistance of experts. [The Asset Clearance,
Transfer and Liquidation Directive No.6/2011 also lays down detailed rules for
disposal of obsolete and unusable assets.]
2.4 Settlement of expenses and payment of debts
The next step is settlement of outstanding debts and expenses of the charity. To
this end,the liquidators call on creditors to file their claims . Once such claims
are duly settled , the liquidators draw up the final balance sheet of the charity .
The balance sheet shall then be examined by internal auditors if the total value
of the property of the charity is below 100,000 ETB, or by external auditors, if
the total value exceeds the aforementioned amount.
2.5 Transfer of Surplus assets
Finally, the CSA transfers the surplus assets, in the following order, to :
1. a charity with similar objectives as the dissolved charity ,or
2. a charity with objectives related to that of the dissolved charity ,or
3. a charity that the CSA considers eligible to special assistance,or
4. a government body that provides social services to the needy and whose
objectives are similar or related to those of the dissolved charity.
The CSA may also divide the assets and transfer the portions to two or more
charities, rather than transferring the whole to a single charity.
3 Measures to be taken by Charities in Liquidation
Survival of the Charity during Winding-up
A charity under dissolution retains its legal personality until its liquidation
is completed and its registration is cancelled. A charity in liquidation
may also be authorised by the CSA to perform ”activities related to its
objectives and cannot be discontinued ”. Therefore, it is advisable for a
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3. charity in liquidation to seek such authorisation so that it can look after the
needs of its beneficiaries even in the twilight of its existence . For example,
under such authorisation, an adoption agency can finalise pending processes
of adoption or, alternatively, transfer custody of remaining children to an
appropriate organ or institution.
Duration of liquidation
The Asset Clearance,Liquidation and Transfer Directive prescribes a
maximum duration of 2 months to wrap up liquidation . Currently, due to
a significant backlog of cases at the Charities and Societies Agency dating
back to 2012, the process takes far longer than 2 months .This means
charities should allocate a more realistic budget for the liquidation process
than is warranted by the statutory provision.
Safeguarding the interests of the charity
A charity in liquidation should proactively seek appointment of its officers
or employees as liquidators. The officer or employee who is a member of
the team of liquidators is in a best position to play the role of watchdog
of the interests of the charity as well as facilitator of the liquidation process .
If the charity fails to have its officers or employees on the team of liquidators,
it should still assign a knowledgeable employee or officer who shall:
• check the accuracy and authenticity of documents before submitting
them to the liquidators,
• obtain duly signed and stamped receipt upon handing over assets of
the charity to liquidators, and
• help liquidators identify and locate items listed in the stock card or
book of accounts.
Depending on circumstances of its dissolution, it may be imperative for
a charity to take a more robust action to safeguard its interests.In this
regard, the law avails a charity in liquidation the right to challenge the
appointment of a specific individual (s) by the CSA on grounds of conflict
of interests,incompetence etc.
Avoidance of Criminal Liability
The Charities and Societies Proclamation obligates officers of a charity to
maintain all accounting records up to 5 years from the financial year they
were made. This obligation subsists even after the charity ceases to exist.
An officer who breaches this legal provision shall be liable to pay a fine
ranging from 20,000 up to 50,000 Ethiopian Birr.
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