Debt Collection in Ethiopia

The debt collection procedure in Ethiopia begins with an assessment of the debtor’s solvency, scope of activity, business history, documentary evidence of the debt, current court cases and enforcement proceedings, and the possibility of disputing the debt. This assessment determines the strategy to be used on behalf of the client in the collection process.

If the debtor has no ongoing court cases or outstanding judgments for debt collection and is actively engaged in business activities, then it is advisable to use the out-of-court debt collection stage.

This stage involves active negotiations with the debtor to reach an agreement on the payment of the creditor’s claims or other possible settlement options (e.g. return of goods, transfer of the debt to a third party, exchange of services or goods).

Interaction with the debtor begins immediately after sending a notice by mail, email, phone or instant messengers. This process involves intensive communication with the debtor in order to exert constant pressure. The main objective is to establish contact with key decision makers to achieve early debt collection.

The average time for informal out-of-court collection is up to 60 days (except in cases where a payment plan is agreed upon). If this stage does not bring the expected results or after an initial analysis it becomes clear that it is not applicable, it is necessary to proceed to collection through the courts.

Before initiating judicial collection, it is worth paying attention to the limitation period. The limitation period for debt collection based on contractual relations is 10 years. The limitation period is interrupted if the debtor acknowledges the debt, in particular by paying part of the debt, paying interest or by providing collateral or guarantees. After the interruption, the limitation period begins to count anew.

Ethiopian law provides for judicial debt collection in the ordinary and simplified judicial procedure.

The ordinary judicial procedure begins with the filing of a claim in court. If there are no grounds for dismissing the claim, the court sends the defendant a copy of the claim and a summons to appear in court and respond to the claim on the date specified in the summons. In the summons, the court orders the defendant to submit all documents that the defendant plans to use in his defense, as well as to ensure the appearance of witnesses who can be questioned at the hearing.

If the defendant fails to appear in court on the appointed day, the court, provided that the debtor has been properly notified, conducts the hearing ex parte. If there is no evidence of proper notification of the defendant, the court postpones the hearing to another date and orders that a second summons be served on the defendant.

If the defendant appears at the hearing, the court reads out the claim and hears the defendant’s objection if he does not admit the claim. In his objection, the defendant must specifically consider each statement of fact, the truth of which he does not admit. Otherwise, if the defendant only provides a general denial of the grounds for the claim, the court may accept such a denial as an agreement with the plaintiff’s facts.

After reviewing the evidence and examining witnesses (if any), the court hears the final arguments of the parties and makes a decision at the same hearing or, if this is not possible, at a separate hearing.

The simplified procedure is used to collect a debt in a clearly stated amount that arose on the basis of a contract. The procedure may be opened by filing a statement of claim with a sworn statement of facts that support the cause of action and the amount of the debt, as well as a statement that the defendant has no prospect of defending the claim. After accepting the claim, the court sends the defendant a summons, according to which the defendant is simply notified of the filed claim, against which the defendant does not have to appear in court and defend against the claim.

In the event that the defendant wishes to defend against the claim, the defendant must apply to the court with a petition for the court’s permission to defend against the claim. To such a motion, the defendant must attach a sworn statement regarding the objection to the plaintiff’s facts, as well as documents supporting the defendant’s position. If the defendant does not apply to the court with such a motion, or applies, but the court refuses to satisfy the motion, then in such cases the court decides in favor of the plaintiff. If the court grants permission to the defendant to defend himself, then the case is subject to consideration according to the rules of ordinary judicial procedure.

The decision of the court of first instance may be appealed to the court of appeal within 60 days from the date of the contested decision. The decision of the court of appeal may be appealed to the Supreme Court of Ethiopia within 30 days from the date of the contested decision. The decision of the Supreme Court is final and cannot be appealed further.

After the court decision comes into legal force, the creditor should initiate the enforcement procedure. The decision can be presented for enforcement within 10 years. As part of the enforcement of the court decision, the creditor’s claims can be satisfied by seizing and writing off funds from the debtor’s accounts; seizing the movable and immovable property of the debtor with their subsequent sale; seizing and confiscating securities, seizing and confiscating the debtor’s property, which is in the hands of third parties.

An alternative option for collecting a debt from a company and an entrepreneur is the bankruptcy procedure of the debtor. According to the Commercial Law of Ethiopia, a creditor has the right to initiate this procedure if the debtor has stopped making payments. At this stage, if the debtor’s assets are not sufficient to fully satisfy the creditors’ claims, it is possible to set aside the debtor’s transactions that were made with the intention of causing damage to the creditors. Such transactions or acts made after the date of cessation of payments but before the decision to open the reorganization procedure include, but are not limited to: transfer of assets or rights to other persons free of charge, by way of gift, waiver or cancellation of rights; transfer of assets or rights to other persons at a clearly undervalued price; payments for debts that are not yet due; transfer of the debtor’s assets as collateral for previously incurred debts. The court may also set aside any other acts made by the debtor during the suspicious period, provided that: a) the creditor knew or should have known that the debtor was already in a state of cessation of payments; b) the act was detrimental to the estate or the payment was made in preference to other creditors. Claims for the cancellation of the above actions or transactions may be filed within two years from the date of opening of the debtor’s reorganization procedure. As a result of the cancellation of the above transactions, it is possible to return back to the debtor what he lost from such transactions and thereby increase the liquidation estate to satisfy the claims of creditors and cover the costs of implementing the bankruptcy procedure.

If you have any questions or need support for international debt collection in Ethiopia, our company is ready to provide its expert assistance to effectively resolve your financial issue. Contact us to get additional information and professional support from specialists of the leading debt collection agency.

# DEBT COLLECTION AGENCY ETHIOPIA

12.11.2024

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