Bankruptcy law passes with reservations

March 03, 2005

The Kaselehlie Press

Finally, during the Sixth Special Session of the 13th FSM Congress, the first Federated States of Micronesia Bankruptcy Law was passed with several reservations. Joseph J. Urusemal, president of the FSM, had designated Congressional Act No. 13-89 as Public Law No. 13-73 without his signature. Public Law No. 13-73 has established for the FSM the first bankruptcy law of the nation by enacting Title 31 of the FSM Code "Bankruptcy and Insolvency."

The stated purpose of Congressional Act No. 13-89 is to establish a bankruptcy system for the FSM that "fairly balances the interest of creditors and debtors in circumstances where the debtor is unable to meet his financial obligations…"

Urusemal congratulated the congress on enacting this much-needed and long-awaited legislation, which he believes is a positive step toward establishing a process for the orderly and equitable resolution of creditor claims against debtors.

In a communication to Peter M. Christian, speaker of the FSM Congress, Urusemal states, "Given the complexity of the bankruptcy law, I agree with the Ways and Means Committee that while this act is far from perfect, it can be adjusted and refined in the future." "In deed, what may first appear to be an ambiguity or deficiency in the act, may later prove otherwise once the FSM Supreme Court has had the opportunity to interpret this statute in the context of the cases brought before it," added Urusemal.

Although Urusemal is highly supportive of the intents of the measure, several primary concerns have prevented him from signing the legislation. His first noted concern was that only the Bank of the FSM was excluded in the law's definition of debtor. "I believe that all FDIC-insured banks in the FSM should also be excluded from the definition of debtor to the extent that this act conflicts with the applied U.S. banking laws," stated Urusemal.

He added that the act should permit the FDIC to petition the FSM Supreme Court to stay a bankruptcy proceeding against an FDIC insured bank pending resolution of parallel proceedings in a United States Court. His concern was that the FDIC may refuse to insure banks in the FSM if there is no guarantee that the U.S. banking laws, which give the FDIC a central role in any receivership or reorganization proceedings, apply. "This in turn is likely to adversely affect the ability of banks to operate in the FSM," Urusemal said.

Second, Urusemal was concerned that while the law allows for reorganization of corporate debtors as an alternative to receivership proceedings, it does not allow similar opportunities to individuals. Urusemal said it is imperative that the FSM's bankruptcy laws make this option available to individual debtors and the FSM Supreme Court.

Urusemal's third concern was the need to instate a criminal penalty provision for bankruptcy fraud to deter any abuses of the law, given that the legislation offers a number of incentives to file a bankruptcy application. A modest criminal penalty provision is needed to prevent abuses to this legislation by unscrupulous debtors or creditors, he said.

FInally, Urusemal is concerned about the legislations' listings of property exemption. The FSM PIO states in a release that the president was concerned that the provisions allowing the states to decide the property exemptions from receivership estate was too extensive and open-handed, which could eventually defeat the purpose of the law.

The complexities of the bankruptcy law led to Urusemal's urge for collaborative efforts between the two branches to adequately resolve the noted issues before the next congressional session.