Case Summary
This post summarizes a Cassation Bench Decision File No.177968 between Nazareth and Arsi Soap Factory PLC, and Nazrawi (Niger) Oil PLC vs. W/ro Yeshi Alemayehu and others regarding the registration of members that acquired shares in a company through succession.
Genesis
The two PLCs (Nazareth and Arsi Soap Factory PLC, and Nazrawi (Niger) Oil PLC) were established by Mr. Mekonnen Abate and Mr. Alemu Gebru. When Mr. Mekonnen died, 16 of his successors were registered as members of the companies. Following Mr. Alemu’s death, his widow and eight other heirs requested registration in the companies based on the shares they possess, as appropriated through a mutual agreement among the heirs. They were told, however, that they could only be registered in the company once they designated one person to act on their behalf and that separate registration in both of the companies was not permitted. As a result, they filed a lawsuit with the court, requesting authorization of registration without appointing a representative in accordance with the commercial code and AOA of the companies.
The lower court concluded that because PLCs are founded between persons with intimate familial ties, membership matters should be addressed only by the AOA of the companies. Consequently, in this instance, the heirs cannot be registered separately and must designate one person in line with the companies’ AOA; however, the deceased’s spouse (W/ro Yeshi) can be registered independently and participate directly without the need to appoint a representative on her behalf.
Appeal to the Oromia Supreme Court
The Oromia Supreme Court however overturned the lower court’s decision and claimed that there is no law that prohibits registration of the heirs so long as their legitimacy is proven. It was also established by the court that the AOA of the company requires the appointment of an agent only for those individuals who hold shares jointly, and not for heirs who have separate shares. Similarly, Art. 328(4) of the 1960 commercial code is inapplicable to this case as it requires persons who hold shares jointly to appoint a representative to exercise their shareholder rights and hence can’t be construed as applicable to those heirs who possess divisible and separate shares.
Appeal to the Federal Supreme Court Cassation Bench
The court, after reviewing the arguments and lower courts’ decisions, determined that the shares are clearly divisible, the owners are distinct heirs, and their voting rights are proportional to the number of shares they own. As a result, each of these heirs should be registered as a separate shareholder in the companies. Thus, the Cassation Bench affirmed Oromia Supreme Court’s decision.
Conclusion
The Supreme Court rendered this judgment prior to the adoption of the New Commercial Code of Ethiopia No. 1243/2021. Be that as it may, as indicated in Article 511 of the New Commercial Code, there has been no modification to the rules governing the registration of shares obtained by succession as it is stated “unless otherwise provided in the memorandum of association, the shares of a deceased member, shall devolve upon his heirs”. Additionally, the need to appoint a representative remains relevant only to joint shareholders under the provisions of Article 270(2) of the New Commercial Code. Hence, it is safe to assume that the aforesaid judgment can still be considered authoritative.