Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698746730096.pdf (Micronesia, Federated States of)
THIRTEENTH CONGRESS OF THE FEDERATED STATES OF MICRONESIA FIFTH SPECIAL SESSION, 2004 CONGRESSIONAL BILL NO.

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13-73 AN ACT To enact title 31 of the Code of the Federated States of Micronesia, entitled "Bankruptcy and Insolvency", to establish a National bankruptcy law for the Federated States of Micronesia, and for other purposes.

BE IT ENACTED BY THE CONGRESS OF THE FEDERATED STATES OF MICRONESIA: Section 1.

Purpose.
Purpose.

The purpose of this bill is to establish a bankruptcy system for the Federated States of Micronesia that fairly balances the interests of creditors and debtors in circumstances where the debtor is unable to meet his financial obligations when due.

A uniform set of laws and procedures is established for all bankruptcy proceedings, providing increased certainty for creditors, debtors and the courts.
The bill is designed to protect the interests of creditors by creating a single proceeding in which multiple 10 creditor claims can be addressed efficiently and equitably, 11 freeing all parties from the uncertainties and costs of numerous, 12 uncoordinated debt enforcement activities, all competing for 13 access to the debtor's assets.
It is also intended that creditor 14 interests be served by the appointment of a receiver, in 15 appropriate circumstances, to marshall all of the debtor's non- 16 exempt assets and to manage those assets, during the pendency of 17 the proceeding, in the best interests of the estate.

The bill 18 creates for the debtor who meets the requirements of the law an CBL 13-145 CONGRESSIONAL BILL NO.

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13-73 opportunity to get a fresh start where he might otherwise face a protracted struggle with debt beyond his ability to pay.

The bill gives to the courts substantial latitude in managing the bankruptcy proceeding to protect the interests of both creditors and debtors, to deal with abuses of the bankruptcy system and to establish a case schedule that takes into consideration the interests of all parties.
It is not the purpose of the bill to interfere with or modify state or traditional law with respect to the transfer of interest in land.

Instead, the bill directs the 10 bankruptcy court to apply state law in determining whether and to 11 what extent interests in land are subject to distribution to 12 creditors.

13 Section 2.

Title 31 of the Code of the Federated States of 14 Micronesia is hereby enacted by adding a new chapter 1 entitled 15 "General Provisions".

16 Section 3.
16 Section 3.

Title 31 of the Code of the Federated States of 17 Micronesia is hereby enacted by adding a new section 101 to read 18 as follows: "Section 101.

Authority; title.

This statute is enacted pursuant to the power of Congress to regulate bankruptcy and insolvency under article IX, section 2(g) of the Constitution of the Federated States of Micronesia.

This act may be cited as the 'Bankruptcy Act of 2004'."

Section 4.
Section 4.

Title 31 of the Code of the Federated States of 2 of 40 CONGRESSIONAL BILL NO.

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13-73 Micronesia is hereby enacted by adding a new section 102 to read as follows: "Section 102.

Definitions.
(1) 'Affiliate' means: (a) a person that directly or indirectly owns, controls, or has the power to vote, twenty percent or more of the outstanding voting securities of the debtor; (b) a corporation twenty percent or more of whose outstanding voting securities are directly or indirectly controlled, or held with power to vote, by the debtor, or by a person that directly or indirectly owns, controls, or holds with power to vote, twenty percent or more of the outstanding voting securities of the debtor; (c) a person whose business is operated under a lease or operating agreement by the debtor, or a person substantially all of whose property is operated under an operating agreement with the debtor; (d) a person that operates the business of, or all or substantially all of the property of the debtor under a lease or operating agreement.
(2) 'Claim' means: (a) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or 3 of CONGRESSIONAL BILL NO.

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13-73 (b) a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.

(3) 'Creditor' means a person or government entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.
(4) 'Debt' means liability on a claim.

(5) 'Debtor' means a person with regard to which a case under this title has been commenced but shall not include a governmental entity or, to the extent that this title conflicts with Article IX of the programs and Services Agreement of the Compact of Free Association, as amended, entitled 'Federal Deposit Insurance Corporation Programs and Services Agreements', the Bank of the Federated States of Micronesia.
(6) 'Governmental entity' means the Federated States of Micronesia, a State, a foreign state, a municipality, or an agency, instrumentality or department of any of the foregoing.

(7) 'Insider' means: (a) if the debtor is an individual: 4 of 40 CONGRESSIONAL BILL NO.

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13-73 (i) a relative of the debtor, or of a general partner of the debtor; (ii) a partnership in which the debtor is a general partner; (iii) a general partner of the debtor; or (iv) a corporation of which the debtor is a director, officer, or person in control.
(b) if the debtor is a corporation: (i) an affiliate, director, officer or person in control of the debtor; (ii) a partnership in which the debtor is a general partner, or a general partner of the debtor; (iii) a relative of a general partner, affiliate, director, officer or person in control of the debtor.
(c) if the debtor is a partnership: (i) a general partner in the debtor; (ii) a relative of a general partner, a general partner of, or a person in control of the debtor; (iii) a partnership in which the debtor is a general partner; (iv) a general partner of the debtor; or (v) an affiliate or person in control of the debtor.

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13-73 (8) 'Interested party' means the debtor, any creditor of the debtor, any equity holder in a corporation that is a debtor, and any other party that the court supervising an application under this title may determine to have a right to be heard on issues pertaining to that application.

(9) 'Person' as used in this chapter means an individual, partnership or corporation, but does not include governmental entities.
(10) 'Relative' means an individual related by blood, marriage within the third degree as determined by common law, persons who are considered close relatives under applicable Micronesian custom, or a step or adoptive relationship within such third degree.

(11) 'State' means a State of the Federated States of Micronesia."

Section 5.
Section 5.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 103 to read 19 as follows: "Section 103.

Application for relief.

(1) An application for the appointment of a receiver under Chapter 2 of this title may be made: (a) by any debtor; or (b) by three or more creditors whose combined claims are in excess of $7,500, provided that each 6 of 40 CONGRESSIONAL BILL NO.
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13-73 creditor's claim is at least $1,000, and further provided that such claims are not contingent and are not subject to a bona fide dispute; or (c) in the case of a partnership, by any person or persons whose interest in the partnership is, in the aggregate, greater than or equal to fifty (50) percent; (2) An application under chapter 3 of this title for the reorganization of a debtor that is a corporation may be made by the debtor.
(3) Any application under this title shall allege that the debtor resides or has a domicile, a place of business, or property in the Federated States of Micronesia.
(4) When the application is brought by creditors, the application shall also allege: (a) that the claims held by such creditors amount in the aggregate to at least $7,500, are not contingent and are not subject to a bona fide dispute; and (b) that the debtor is generally not, at the time of the application, paying its debts as they become due, and has generally not been paying its debts as they became due for at least sixty (60) days prior to the date of the application."

Section 6.
Section 6.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 104 to read 7 of 40 CONGRESSIONAL BILL NO.

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13-73 as follows: "Section 104.

Filing of application.


(1) An application for relief under this title shall be filed with the Trial Division of the FSM Supreme Court located in a State of the Federated States of Micronesia where the debtor resides or has domicile, a place of business, or property.
(2) The court in which the application is filed shall supervise the proceeding unless the court, in its discretion, determines that the proceeding may be more efficiently supervised by the FSM Supreme Court Trial Division located in another State of the Federated States of Micronesia.
(3) The application must be in the form specified by the court, accompanied by such filing fee as the court may set, and must contain, to the best of the knowledge of the applicant, a statement of financial condition of the debtor, as well as schedules of debts, assets and exemptions of the debtor.
All applications must be sworn under penalty of perjury by the debtor, or members of the applying creditors group; (4) In the case of an application made pursuant to subsection 103(1)(b) of this chapter, the debtor may, within the time prescribed by the court, file an answer to the application.

An answer may allege one or more of 8 of 40 CONGRESSIONAL BILL NO.

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13-73 the following: (a) that the debtor is generally able to pay its debts as they come due; or (b) that the claims of the creditors do not satisfy the requirements of subsection 103(1)(b) of this chapter; or (c) in the case of a corporation, that it is in the best interests of the debtor and creditors that the proceeding be converted to a proceeding under chapter 3 of this title; or (d) that the allegations in the application are insufficient as a matter of law."

Section 7.
Section 7.

Title 31 of the Code of the Federated States of 14 Micronesia is hereby enacted by adding a new section 105 to read 15 as follows: "Section 105.

Notice.
Notice to Interested Parties of the filing of an application under this title and of motions, hearings and other events relating to proceedings under this title shall be given at such time and in such manner as the court may determine for the purposes of (a) giving as many interested parties as reasonably practicable an opportunity to be heard concerning matters affecting their interests in the proceedings, and (b) maximizing the number of claims against the debtor that can be 9 of 40 CONGRESSIONAL BILL NO.
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13-73 discharged, compromised, paid or otherwise resolved through the proceedings."

Section 8.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 106 to read as follows: "Section 106.

Stay of proceedings.


(1) Except as provided in subsection (2) of this section, an application under this title operates throughout the Federated States of Micronesia and every State thereof as a stay, applicable to all persons and governmental entities, of the commencement or continuation of all legal proceedings against the debtor, against the property of the debtor, and against property held by the receiver.
(2) An application under this title does not operate as a stay of: (a) criminal proceedings against the debtor; or (b) the commencement or continuation of legal proceedings by a governmental entity to enforce a police or regulatory power.

(3) The stay authorized by subsection (1) of this section shall continue until the proceedings related to the application are terminated, suspended or dismissed, or the party affected obtains relief from the stay pursuant to subsection (4) of this section.
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13-73 (4) Upon the application of a party affected by the stay, the court, for cause shown, shall either: (a) grant relief from stay; or (b) grant such other relief as will provide adequate protection for the party requesting relief from stay."

Section 9.
Section 9.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 107 to read as follows: "Section 107.

Claims of creditors.

(1) Any creditor may file a sworn claim in such manner and within such time limits as the court shall prescribe.
(2) Each claim shall be allowed except to the extent that: (a) such claim is unenforceable for any reason other than because such claim is contingent or unmatured; (b) such claim is for unmatured interest; (c) such claim is for punitive damages and is not compensation for actual pecuniary loss; or (d) such claim has not been filed within the time limit prescribed by the court.
(3) In the event of a dispute as to whether or in what amount a claim is allowable under this section, the 11 of 40 CONGRESSIONAL BILL NO.

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13-73 court may (a) summarily determine the matter upon motion, (b) conduct a trial on the claim, or (c) refer the matter to another court for determination.
(4) An allowed claim of a creditor is a secured claim to the extent of the value, as determined by the court, of the collateral, provided all criteria under applicable law for perfecting security interests have been complied with, and further provided that no security interest in land shall be treated as a secured claim except to the extent, if any, to which such security interest is enforceable under the laws of the state in which the land is located.
An allowed claim is an unsecured claim to the extent that the value of the collateral pledged by the debtor as security for that claim is less than the amount of the claim.

(5) The holder of an allowed secured claim is entitled to the approved value of the collateral or its equivalent, unless such creditor agrees to accept a lesser amount.

(6) Assets shall be distributed to the holder of an allowed unsecured claim in accordance with the provisions of this title."

Section 10.
Section 10.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 108 to read 25 as follows: 12 of 40 CONGRESSIONAL BILL NO.

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13-73 "Section 108.

Priorities.
(1) The following claims and expenses shall have priority in the following order: (a) all necessary administrative expenses incurred in connection with the proceeding as may be determined by the court, including compensation of any receiver or trustee, applicable attorneys fees, and wages, salaries and other expenses incurred, after the date of the application, in connection with continuing to operate any business of the debtor, to the extent that such continued operations are permitted by this title or by order of the court; (b) all liens of the FSM Social Security Administration subject to section 607 of title 53 of the Code of the Federated States of Micronesia; (c) all allowed unsecured claims of the National Government or any State or local government of the Federated States of Micronesia, or any entity or public corporation of any such government; (d) all claims by employees of the debtor for wages and salaries for services prior to the date of the application, except for such claims by persons who hold an ownership interest in a debtor that is a business, persons who hold a management position in the business of the debtor and relatives of the debtor; 13 of 40 CONGRESSIONAL BILL NO.
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13-73 (e) other allowed unsecured claims, including any unsecured portions of claims held by secured creditors, but not including claims within subsections (e) and (f) of this section; (f) if the debtor is a corporation or a partnership, all allowed claims arising from the ownership, purchase or sale of any equity or partnership interest in the debtor; (g) all rights, claims and interests of the debtor.
(2) Payment of professional fees and other administrative costs of the debtor, as described in subsection (1)(a) of this section, may be made during the course of a proceeding, subject to approval by the court.
Such payments may include advance payments if determined by the court to be necessary and appropriate to accomplish the purposes of this title; (3) Creditors having claims or expenses of the same order of priority shall be treated equally except to the extent that a creditor agrees to be treated less beneficially."

Section 11.
Section 11.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 109 to read 24 as follows: 25 "Section 109.

Setoff.

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13-73 The law of setoff shall apply in the event that the debtor has any right to recover, arising prior to the filing of an application hereunder, against a creditor filing a claim under this title, provided that the creditor's claim is allowable under section 107 hereof, and further provided that no claim against the debtor by a bank or other financial institution shall be setoff against funds or other assets held by the bank or financial institution on account for the debtor."
10 Section 12.

Title 31 of the Code of the Federated States of 11 Micronesia is hereby enacted by adding a new section 110 to read 12 as follows: "Section 110.

Rulemaking power of the court.

The Supreme Court of the Federated States of Micronesia may adopt such rules, not inconsistent with the provisions of the title, as it may deem necessary or appropriate to the supervision of proceedings under this title or otherwise to effect the purposes of this title."

Section 13.
Section 13.

Title 31 of the Code of the Federated States of 21 Micronesia is hereby enacted by adding a new section 111 to read 22 as follows: 23 24 25 "Section 111.

Retention of professionals.

The debtor may retain, for the purposes of proceedings under this title, one or more attorneys, accountants or 15 of 40 CONGRESSIONAL BILL NO.

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13-73 other professionals, provided that the retention and terms of retention of each such professional shall be subject to approval by the court.

The court may retain one or more appraisers, accountants or other professionals to appraise property of the debtor, to examine the financial condition of the debtor or otherwise to assist the court in connection with a proceeding under this title.
Unless otherwise ordered by the court, the fees and costs of any professionals retained by the court and the debtor shall be treated as administrative costs under section 108 hereof."

Section 14.

Title 31 of the Code of the Federated States of 13 Micronesia is hereby enacted by adding a new section 112 to read 14 as follows: "Section 112.

Qualifications of receivers and trustees.


(1) A person may serve as a receiver or trustee under this title only if such person is: (a) competent to perform the duties of a receiver or trustee; (b) resides or has an office in the Federated States of Micronesia; (c) holds relevant professional qualifications as determined by the FSM Supreme Court; and (d) has never been convicted of a crime of moral turpitude, fraud, theft, deceit or other act which 16 of 40 CONGRESSIONAL BILL NO.
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13-73 involves dishonesty.

(2) Nothing in this act will preclude the FSM Supreme Court from removing a receiver or trustee in any case for good cause shown.

(3) No relative, affiliate or other such insider of the debtor shall be appointed to serve as a receiver or trustee under this title.
(4) The court shall have the authority to fix the compensation of the receiver or trustee, however it shall be specifically prohibited from fixing compensation based solely on time referenced billing.
When fixing compensation of the receiver or trustee the court shall take into consideration: (a) the complexity of the case; (b) the skill and reputation of the receiver or trustee; (c) the benefit of all work provided by the receiver or trustee; and (d) any other relevant criteria which the court in its discretion may choose to employ."

Section 15.

Title 31 of the Code of the Federated States of 22 Micronesia is hereby enacted by adding a new chapter 2 entitled 23 "Receivership Proceedings".
24 Section 16.

Title 31 of the Code of the Federated States of 25 Micronesia is hereby enacted by adding a new section 201 to read 17 of 40 CONGRESSIONAL BILL NO.

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13-73 as follows: "Section 201.

Approval of application; Suspension or dismissal of pending receivership.

(1) Any application for the appointment of a receiver shall be filed as provided in sections 103 and 104 of this title.
Upon such application, the court shall appoint a receiver within such time as the court shall prescribe if: (a) there is no objection by any Interested Party; or (b) the court finds that the party or parties objecting to the application have failed to establish that (i) the allegations of the application are insufficient as a matter of law, or (ii) it is in the best interests of the debtor and the creditors that the application be dismissed.
(2) Notwithstanding subsection (1) of this section, the court may deny the application, dismiss a pending receivership, or suspend a pending receivership if it finds that such denial, dismissal or suspension is in the best interests of the debtor and its creditors.

If the court finds that an application under this title has been filed in bad faith, it may award to interested parties injured thereby their reasonable costs and attorneys fees to be paid by the filing parties."
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13-73 Section 17.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 202 to read as follows: "Section 202.

Powers of the receiver.
(1) Subject to such limitations as may be ordered by the court, the powers of the receiver include, but are not limited to: (a) the power to use, sell and lease property of the receivership estate, provided that the receiver shall not make any transfer of an interest in land that would be inconsistent with the law of the state in which the land is located; (b) the power to obtain credit on behalf of the receivership estate; (c) the power to assume and reject executory contracts and leases of the debtor; (d) the power to abandon or disregard property of inconsequential value of the receivership estate; (e) the power to transfer title to property of the estate pursuant to distribution orders from the court under section 204 of this title; and (f) the power to avoid preferences and fraudulent conveyances as provided in sections 205, 206 and 207 of this title.
(2) Court approval is required for actions taken 19 of 40 CONGRESSIONAL BILL NO.

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13-73 pursuant to subsection (1)(a) and (1)(b) of this section unless the activity occurs in the ordinary course of business.

Court approval is also required for actions taken pursuant to subsection (1)(c), (1)(d), (1)(e) and 1(f) of this section."

Section 18.
Section 18.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 203 to read as follows: "Section 203.

Property to be administered by the receiver.

(1) The appointment of a receiver pursuant to this chapter creates a receivership estate.
The estate shall consist of the following: (a) subject to the exemptions contained in section 209 of this title, all property owned by the debtor on the date of the application; (b) all property acquired by the debtor through bequest, devise, or inheritance, or as beneficiary of a life-insurance policy in the 180 days after such application; and (c) all property acquired by the receivership estate after the date of application.
(2) The receivership estate shall be administered in accordance with this title and as may be ordered by the court."

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13-73 Section 19.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 204 to read as follows: "Section 204.

Distribution of the receivership estate.


Assets of the receivership estate, following the satisfaction of secured claims pursuant to section 107 of this title, shall be distributed according to the priorities set forth in section 108 of this title.

Such distribution shall occur by order of the court, upon application by the receiver.

The order shall identify the assets to be distributed and include a schedule of the distributions to be made."

Section 20.
Section 20.

Title 31 of the Code of the Federated States of 14 Micronesia is hereby enacted by adding a new section 205 to read 15 as follows: "Section 205.

Preferences.
Preferences.

(1) Except as provided in subsection (2) of this section, the receiver may avoid any transfer of an interest of the debtor in property: (a) to or for the benefit of a creditor; (b) for or on account of an antecedent debt; (c) made while the debtor was insolvent; (d) made on or within 90 days, or within one year if the creditor was an insider, affiliate or relative of the debtor, before the date of the application for the 21 of 40 CONGRESSIONAL BILL NO.
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13-73 receivership; and (e) that enables such creditor to receive: (i) more than such creditor would have received if the transfer had not been made; (ii) more than such creditor would have received if his claim, right or entitlement had been treated as a claim in a proceeding under chapter 2 of this title.
(2) The receiver may not avoid under subsection (1) of this section a transfer to the extent that: (a) such transfer was intended to be, and in fact was, a contemporaneous exchange for new value; (b) such transfer was a payment of debt in the ordinary course of business of both the debtor and the transferee; or (c) after such transfer, such creditor advanced new value to or for the benefit of the debtor.
(3) The receiver has the burden of proving the avoidability of a transfer under subsection (2) of this section.

The receiver is entitled to the benefit of a rebuttable presumption that the debtor was insolvent during the 90 day period specified in subsection (1)(d) of this section."

Section 21.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 206 to read 22 of 40 CONGRESSIONAL BILL NO.
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13-73 as follows: "Section 206.

Fraudulent transfers.
(1) The receiver may avoid any obligation incurred by the debtor or transfer of an interest of the debtor in property if such transfer is made or obligation incurred within one year before the application for the receivership; and (a) the debtor actually intended to hinder, delay or defraud a creditor or creditors, or (b) the debtor has entered into a transaction or incurred an obligation, without receiving a reasonably equivalent value for the obligation or transfer and, (i) at the time of entering into the transaction to transfer the property or to incur the obligation, the debtor was not generally paying his debts when they became due or should reasonably have believed that, following the consummation of the transaction, he would not be able to pay his debts when they became due; or (ii) the debtor was engaged in a business for which, following the transaction, the remaining assets of the business were unreasonably small in relation to the business.
(2) Except to the extent that the transfer is also voidable pursuant to section 205 of this chapter, a good 23 of 40 CONGRESSIONAL BILL NO.

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13-73 faith transferee for value is entitled to a lien on the transferred property to the extent of such value."

Section 22.
Section 22.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 207 to read as follows: "Section 207.

Transferee liability.

(1) To the extent that a transfer is avoided under either section 205 or 206 of this act, the receiver is entitled to recover the property transferred or, in appropriate cases, its value from: (a) the initial transferee or the entity for whose benefit such transfer was made; or (b) subsequent transferees of the initial transferees.
(2) The receiver may not recover under subsection (1) of this section from a good faith transferee for value or a subsequent transferee of such a good faith transferee.

(3) The receiver is entitled to only a single satisfaction under section 206(1) of this title."

Section 23.

Title 31 of the Code of the Federated States of 22 Micronesia is hereby enacted by adding a new section 208 to read 23 as follows: 24 25 "Section 208.

Discharge.
Discharge.

(1) A debtor who is the subject of receivership 24 of 40 CONGRESSIONAL BILL NO.

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13-73 proceedings is entitled to a discharge from the claims of all creditors, unless: (a) the debtor is not an individual; or (b) the debtor has: (i) transferred property in violation of section 206 of this title; or (ii) with intent to defraud has concealed, transferred or damaged property of the receivership estate after the date of the application; or (c) the debtor has been granted a discharge pursuant to this chapter in a receivership commenced within seven years before the commencement of the pending receivership.
(2) A discharge granted pursuant to this chapter does not discharge the debtor from any debt: (a) for money, property and the like obtained by actual fraud; (b) to a spouse, former spouse, child or other person for support or maintenance; (c) to the extent that such debt is subject to disallowance pursuant to section 107(2)(c) of this title; or (d) to the extent such debt arises from a student or educational loan that, at any time since the debt was first incurred, has been funded, administered or 25 of 40 CONGRESSIONAL BILL NO.
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13-73 guaranteed by any government or government agency.

(3) A discharge may be revoked for cause at any time prior to the termination of the receivership proceeding.

(4) A discharge operates as an injunction against the commencement or continuation of any act or action to collect a debt as a personal liability of the debtor."

Section 24.
Section 24.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 209 to read as follows: "Section 209.

Exempt property.
An individual debtor may exempt from the receivership estate, except for property subject to allowed secured claims, the property described in either subsection (1) or subsection (2) below: (1) The debtor may exempt from the receivership estate any property that is exempt under the law, in effect at the time of the filing of the application, of the State in which the debtor was domiciled for the 180 days immediately preceding the filing of the application, or for the largest portion of said 180-day period.
(2) Alternatively, the debtor may exempt from the receivership estate, the following property, except to the extent that such exemption is expressly not permitted under the law of the State applicable to debtor under subsection 1 of this section: 26 of CONGRESSIONAL BILL NO.

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13-73 (a) Personal and household goods.


All necessary household furniture, cooking and eating utensils, and all necessary wearing apparel, bedding and provisions for household use sufficient for six months.

(b) Necessities for trade or occupation.

All tools, implements, utensils, two work animals and equipment necessary to enable debtor to carry on his usual occupation.

This section does not apply to corporate filings, or individual filings where the debt is primarily of a business nature.
(c) Land and interests in land.
All interests in land, including crops on such land, however, any interest owned solely by a debtor, in his own right, may be ordered sold, transferred or subdivided by the receiver if the court making the order finds that (i) justice so requires, (ii) the transfer, sale or subdivision of the interest would not be inconsistent with the law relating to exemptions of the State in which the land is located, and (iii) after the sale or transfer, the debtor will have sufficient land and crops remaining to support himself and those persons directly dependent on him according to recognized local custom.
In order to accomplish the purposes of this title, the 27 of 40 CONGRESSIONAL BILL NO.

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13-73 court, after notice to all interested parties in such manner as may be ordered by the court, may enter rulings as to the nature and extent of the debtor's interests in land, which rulings shall be binding upon and enforceable against any person, who claims or may later claim an interest in that land.

(d) Vehicles.

A motor vehicle, not to exceed $1,500 in value.


(e) Boats.

A boat and motor with a combined value not in excess of $2,500.

(f) Cash.

Cash on hand in any checking or savings account not to exceed $400.00.

(g) Retirement.

Debtors interest in a retirement plan, except to the extent that the retirement plan has been funded by contributions from the debtor and the debtor has the ability to exercise control or benefit from the plan before retirement.

(h) Others.
(h) Others.

Other personal or household goods, not previously exempted, not to exceed $1,200 in the aggregate or $200 per item."

Section 25.

Chapter 3 of title 31 of the Code of the Federated States of Micronesia is hereby enacted by enacting a 23 new chapter 3 entitled "Reorganization Proceedings".

24 Section 26.
24 Section 26.

Title 31 of the Code of the Federated States of 25 Micronesia is hereby enacted by adding a new section 301 to read 28 of 40 CONGRESSIONAL BILL NO.

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13-73 as follows: "Section 301.

Approval of application, Suspension, dismissal or conversion of pending reorganization.
(1) An application for the reorganization of a debtor that is a corporation may be filed by the debtor pursuant to the requirements of sections 103 and 104 of this title, provided that, in addition to the requirements of those sections, an application for reorganization shall also allege that (a) there is a reasonable likelihood that the debtor can be successfully reorganized so as to be able generally to pay debts incurred in continuing to do business and (b) such reorganization is in the best interests of the creditors.
(2) The court shall permit the application and permit debtor to continue to operate its business during the pendency of reorganization proceedings if: (a) there is no objection by an Interested Party; or (b) the court finds that the party or parties objecting to the application have failed to establish that it is in the best interests of the creditors and the estate that the application be dismissed.
(3) Notwithstanding subsections (1) and (2) of this section, the court may, at any time prior to the 29 of 40 CONGRESSIONAL BILL NO.

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13-73 confirmation of a plan of reorganization, and after notice and a hearing, dismiss a pending reorganization proceeding, suspend such a proceeding or convert a reorganization proceeding to a receivership proceeding under chapter 2 of this title, whichever is in the best interests of the creditors and the estate, if it finds (a) that there is continuing reduction of the debtor's assets and absence of a reasonable likelihood of a successful reorganization of debtor; (b) that there is an inability to effectuate a plan; (c) that there has been unreasonable delay by the debtor that is prejudicial to creditors; or (d) that there has been a failure by the debtor to submit a plan of reorganization in the time permitted by this chapter or by order of the court."
Section 27.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 302 to read 19 as follows: "Section 302.

Operation of the debtor's business and appointment of trustee.
The business of the debtor, during the pendency of the reorganization proceeding, shall be operated by the management that existed on the application date, except that the court may at any time, after notice and a 30 of 40 CONGRESSIONAL BILL NO.

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13-73 hearing, appoint a trustee to replace that management if it finds that such replacement is in the best interests of the debtor and the creditors."

Section 28.
Section 28.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 303 to read as follows: "Section 303.

Powers of debtor or trustee.
During the pendency of the reorganization proceeding, the debtor, or the trustee if one has been appointed, shall have the following powers, subject to any limitations ordered by the court: (a) the power to use, sell and lease property of the debtor; (b) the power to obtain credit on behalf of the debtor; (c) the power to assume and reject executory contracts and leases of the debtor; (d) the power to abandon or disregard property of inconsequential value of the debtor; and (e) the power to avoid preferences and fraudulent conveyances upon the same terms and in the same circumstances as a receiver as provided in sections 205, 206 and 207 of this title.
Court approval is required for actions taken pursuant to subsection (a) and (b) of this section unless the 31 of 40 CONGRESSIONAL BILL NO.

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13-73 activity occurs in the ordinary course of business.

Court approval is also required for actions taken pursuant to subsection (1)(c), (1)(d) and (1)(e) of this section."

Section 29.
Section 29.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 304 to read as follows: "Section 304.

Filing of a plan.

(1) The debtor may file a plan of reorganization at the time of filing its application under this chapter, or at any other time during the course of a proceeding under this chapter, provided that the court may, by order, set a time within which the debtor must file a plan.
(2) Any other interested party may file a plan of reorganization only if: (a) a trustee has been appointed by the court; (b) the debtor has failed to file a plan within 90 days of the commencement of a proceeding under this chapter, or such longer or shorter period as may be ordered by the court; (c) the debtor has failed to file a plan that has been approved by a vote of creditors as described in subsection 308 below, within 120 days of the commencement of a proceeding under this chapter, or such 32 of 40 CONGRESSIONAL BILL NO.
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13-73 shorter or longer period as may be ordered by the court; or (d) the court so orders after notice and a hearing."

Section 30.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 305 to read as follows: "Section 305.

Classification of claims.


(1) A plan may separate claims into multiple classes provided that a claim may be placed in a particular class only if it is substantially similar to other claims in that class, except as provided in subsection (2) of this section.
(2) A plan may include a class of convenience claims all of which are (a) less than an amount approved by the court as necessary for administrative convenience, or (b) have been reduced to that amount by agreement of the creditors holding those claims."

Section 31.

Title 31 of the Code of the Federated States of 20 Micronesia is hereby enacted by adding a new section 306 to read 21 as follows: 22 23 24 25 "Section 306.

Contents of the plan.


(1) The plan shall-- (a) designate, subject to the requirements of section 305 of this chapter, classes of claims; 33 of 40 CONGRESSIONAL BILL NO.

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13-73 (b) identify any class of claims that is not impaired under the plan; (c) specify the treatment of each class of claims that is impaired under the plan; (d) treat all claims within a class upon equal terms unless the holder of a claim has agreed to less advantageous treatment; (e) provide adequate means for the plan's implementation, such as (i) retention by the debtor of any assets of the debtor so as to enable the debtor to continue its business; (ii) transfer of all or any part of the assets of the debtor to another person; (iii) merger or consolidation with another person; (iv) sale of any part of the debtor's assets to another person or distribution of such assets to a creditor that holds an interest in the assets; or (v) cancellation of stock or other ownership interests in the debtor; and (f) include such other information as the court, after notice and a hearing, may determine to be necessary to adequately inform creditors for the purposes of voting on the plan.
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13-73 (2) The plan may propose the resolution of claims against the debtor through the distribution to creditors of value in the form of (a) cash, (b) other assets of the debtor, (c) equity in the reorganized debtor, (d) secured or unsecured debt of the reorganized debtor, or (e) any combination thereof.
Subject to the provisions of section 308(7) of this title, the plan may propose that there be no distribution of value to one or more classes of creditors."

10 Section 32.

Title 31 of the Code of the Federated States of 11 Micronesia is hereby enacted by adding a new section 307 to read 12 as follows: "Section 307.

Impairment.
A class of claims is impaired under the plan unless the plan leaves unaltered or restores to the holders of the claims in the class all of the legal, equitable and contractual rights to which they would have been entitled in the absence of the commencement of the proceeding under this title, except that no claim shall be considered impaired solely by reason of the plan's failure to give effect to any provision allowing a creditor (a) to accelerate payment of a debt or (b) to foreclose or otherwise enforce a lien against property of the debtor based upon a default or other action occurring prior to or during the proceeding under this 35 of 40 CONGRESSIONAL BILL NO.
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13-73 title."

Section 33.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 308 to read as follows: "Section 308.

Voting on the plan.
Voting on the plan.

(1) If, after notice and a hearing, the court finds that (a) the proposed plan satisfies the requirements of section 306 of this chapter, (b) is fair and equitable to the creditors, and (c) has a reasonable likelihood of being successfully implemented, the plan shall be submitted to a vote of the creditors according to the terms of this section.

(2) Voting by the creditors on the plan shall be at such time and in such manner as may be determined by the court.
(3) Prior to voting on the plan, each creditor shall be given, in such manner as may be determined by the court, (a) notice of the time and manner of voting (b) a description of the rules of voting, and (c) an opportunity to review the plan.

(4) A class of claims shall be deemed to have accepted the plan if creditors holding a majority of claims in number and two-thirds of claims in value in the class vote in favor of the plan.
(5) Persons holding claims that are not impaired by 36 of 40 CONGRESSIONAL BILL NO.

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13-73 the plan shall be deemed to have voted to accept the plan, and need not be included in the voting.

(6) Persons holding claims that, under the plan, will receive no distribution or other value shall be deemed to have voted against the plan and need not be included in the voting.
(7) The plan will be deemed to have been accepted by the creditors if: (a) At least one class of claims has voted in favor of the plan, or is deemed to have voted in favor of the plan as provided in subsection 5 of this section, and (b) No class of claims that has voted to reject the plan will receive or retain, under the plan, less value than the holders of claims in that class would receive if debtor were liquidated under chapter 2 of this title."

Section 34.
Section 34.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 309 to read 20 as follows: "Section 309.

Plan rejection.

If, on a vote of the creditors under section 308 of this chapter, the plan has not been accepted, the court, after notice and a hearing, may take such action as it finds to be in the best interest of the creditors and 37 of 40 CONGRESSIONAL BILL NO.
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13-73 the debtor, such as permitting modification of the plan, permitting other interested parties to submit a plan, converting the reorganization proceeding to a receivership proceeding under chapter 2 of this title, or dismissing the reorganization proceeding."

Section 35.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 310 to read as follows: "Section 310.

Confirmation.
Confirmation.

If, on a vote of the creditors under section 308 of this chapter, the plan has been accepted, the court shall enter an order confirming the plan.

The confirmation order shall contain such terms and conditions as the court may find to be necessary and appropriate to the implementation of the plan.

The confirmed plan and the confirmation order shall be binding on the debtor and upon all creditors.
Except as specifically stated in the plan or the confirmation order, the entry of the confirmation order--- (1) discharges the debtor from all debts that arose before the date of such confirmation order regardless of (a) whether the debt was submitted as a claim in the proceeding under this title and (b) whether the creditor holding such debt voted in favor of the plan; 38 of 40 CONGRESSIONAL BILL NO.
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13-73 (2) vests in the debtor all property of the debtor not otherwise dealt with in the plan; and (3) releases all property dealt with in the plan from all claims and liens except as identified in the plan."

Section 36.

Title 31 of the Code of the Federated States of Micronesia is hereby enacted by adding a new section 311 to read as follows: "Section 311.

Retention of jurisdiction.


(1) Following the entry of the order of confirmation, the court shall retain jurisdiction, for such time as it determines to be reasonable, for the purpose of resolving issues arising from the implementation of the plan.
(2) If, upon application by any interested party, and after notice and a hearing, the court finds that the debtor has failed or is unable to implement any portion of the plan or to comply with any provision of the confirmation order, the court may modify or revoke the confirmation order, or take such other action as it determines to be necessary and appropriate to accomplish the purposes of this chapter."

Section 37.
Section 37.

This act shall become law upon approval by the 23 President of the Federated States of Micronesia or upon its 24 becoming law without such approval.

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13-73 __________________________, 2004 LAW WITHOUT SIGNATURE JANUARY 31, 2005 ________________________________ Joseph J. Urusemal President Federated States of Micronesia 40 of 40