Cardinal Principles

The cardinal principles are general principles from which all the subsidiary rules and principles of bankruptcy emanate. They are like constitutional principles from which all the bye-laws originate.

As we have discussed earlier in the part dealing with the historical background of bankruptcy, in the earlier times bankruptcy applies to persons who involved in commercial activities. That is to say, it is only persons who involved in commerce that can be the subjects of bankruptcy. But later, because of the influence of Spanish law, persons who did not engage in non-commercial activities were made the subjects of bankruptcy proceedings.

Elders witness that in Ethiopia the ancient society experienced similar practices to that of the Romans. In earlier times failure to perform promises (i.e. failure to pay back loans) which were given in monetary form or in exchange of goods for goods or bartering entails punishment. The punishment imposed on defaulting persons was either imprisonment in the home of the creditor or enslavement. This trend was gradually abolished during the reign of His Imperial Majesty Haile Sellasie. Before Hailesellasie's regime, Menilik II officially prohibited slavery but it hiddenly existed until mid of the 19^th C.

It is proper to define the term bankruptcy before delving into the discussion on the concept. Some literatures reveal that the term bankruptcy is used only for individual debtor's insolvency whereas the term liquidation is used for insolvency of business organization. However, many jurisdictions use the term bankruptcy interchangeably with insolvency and sometimes use bankruptcy as general term applied for natural as well as for legal persons.