Insolvency Law at Micronesia
The Federated States of Micronesia (FSM) has established a comprehensive legal framework for bankruptcy and insolvency under Title 31 of the FSM Code, known as the Bankruptcy Act of 2004. This Act, enacted by Public Law 13-73, aims to balance the interests of creditors and debtors by providing a unified system for addressing financial distress. (FSMCode2014Tit31Chap01, Ch.2 Title 31: Bankruptcy and Insolvency)
⚖️ Overview of the Bankruptcy Act
The Bankruptcy Act of 2004 was enacted to create a fair and efficient system for handling cases where a debtor is unable to meet financial obligations. It establishes procedures for both voluntary and involuntary bankruptcy filings, allowing for the orderly resolution of debts and the equitable treatment of creditors. (Ch.2 Title 31: Bankruptcy and Insolvency)
🧑⚖️ Legal Mechanisms
1. Voluntary and Involuntary Bankruptcy
Voluntary Bankruptcy: A debtor may file for bankruptcy voluntarily by submitting an application to the FSM Supreme Court, accompanied by a sworn statement of financial condition and schedules of debts, assets, and exemptions. (FSMCode2014Tit31Chap01)
Involuntary Bankruptcy: Creditors may initiate bankruptcy proceedings if they collectively hold claims exceeding $7,500, provided each claim is at least $1,000, not contingent, and not subject to a bona fide dispute. (FSMCode2014Tit31Chap01)
Applications for bankruptcy must be filed in the state where the debtor resides, has a domicile, or owns property. (FSMCode2014Tit31Chap01)
2. Automatic Stay
Upon the filing of a bankruptcy application, an automatic stay is imposed, halting most legal proceedings against the debtor. This includes actions to collect debts, enforce judgments, or repossess property, providing the debtor with temporary relief from creditors. (FSMCode2014Tit31Chap01)
3. Claims and Priorities
Creditors' claims are addressed in a specific order:
Administrative Expenses: Costs incurred during the bankruptcy process.
Secured Claims: Debts backed by collateral.
Unsecured Claims: General debts not backed by collateral.
The Act ensures that creditors are treated equitably and that the debtor's assets are distributed fairly. (FSMCode2014Tit31Chap01)
4. Reorganization and Liquidation
The Bankruptcy Act provides mechanisms for both reorganization and liquidation:
Reorganization: Allows a debtor to propose a plan to restructure debts and continue operations.
Liquidation: Involves the sale of the debtor's assets to pay off creditors.
The appropriate course of action depends on the debtor's financial situation and the feasibility of a reorganization plan.
📋 Additional Provisions
Receivership: The Act allows for the appointment of a receiver to manage the debtor's assets during the bankruptcy process.
Fraudulent Transfers: Transactions made to defraud creditors can be reversed under the Act.
Discharge of Debts: Under certain conditions, the Act provides for the discharge of debts, releasing the debtor from personal liability.
🏛️ Judicial Oversight
Bankruptcy proceedings in the FSM are overseen by the FSM Supreme Court, which has the authority to interpret the Bankruptcy Act and make determinations in individual cases. The Court's decisions help shape the application of bankruptcy laws in the FSM. (FSM Supreme Court Rules - Rules)
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