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Marshall Islands Adoption of Cross-Border Insolvency Statute

Marshall Islands
September 18, 2018

The Republic of Marshall Islands (the “Marshall Islands”) has passed an Act (the “Act”) implementing the U.N. Commission on Internal Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (the “Model Law”). The Act is intended to implement effective mechanisms for dealing with issues related to cross-border insolvency proceedings and encourages cooperation and coordination between jurisdictions. Notably, the Model Law does not alter the substantive insolvency laws of any jurisdiction and does not create a bankruptcy code in the Marshall Islands. Instead, the Act allows for the recognition by the Marshall Islands of foreign insolvency proceedings, the provision of foreign creditors with access to courts in the Marshall Islands, and the cooperation with foreign courts. All matters relating to the Act are administered by the High Court of the Republic of the Marshall Islands (the “High Court”). The Act is divided into five categories, discussed in turn below.

I. Access of Foreign Representatives and Creditors to Courts in the Republic

Under the Act, both foreign representatives (a person authorized to administer the reorganization or the liquidation of a debtor’s assets) and foreign creditors are entitled to access to the courts of the Marshall Islands. A foreign representative may apply directly to the High Court with regards to a matter relating to insolvency, including the commencement of an insolvency proceeding under Marshall Islands law and participation in an ongoing proceeding. Foreign creditors are afforded access to Marshall Islands insolvency proceedings, and are deemed to have the same rights as creditors in the Marshall Islands. Creditor protections, such as notice of proceedings, are also included. Upon the commencement of a proceeding relating to insolvency in the Marshall Islands, notification is to be given to creditors located both in the Marshall Islands and also to known creditors outside of the Marshall Islands. Notifications to creditors regarding an insolvency proceeding in the Marshall Islands must indicate a reasonable time period for filing claims and specify the place for filing and whether secured creditors need to file their secured claims.

II. Recognition of a Foreign Proceeding and Relief

If seeking recognition of a foreign insolvency proceeding, a foreign representative must apply to the High Court for recognition, and provide evidence affirming the existence of the foreign proceeding. The High Court will also determine whether the foreign proceeding is either main or non-main (under the general notion that as far as possible, the foreign main proceeding should control, with other foreign courts providing assistance in their jurisdiction). A foreign-main proceeding takes place in the jurisdiction where the debtor has the center of its main interests, while a foreign non-main proceeding takes place in a foreign state where the debtor has an establishment, which is defined as a place of operations where the debtor carries out non-transitory economic activity with human means and goods or services.

Upon recognition of a foreign main proceeding, an automatic stay is granted against (i) the commencement or continuation of individual proceedings concerning the debtor’s assets, rights, obligations or liabilities in the Marshall Islands; (ii) execution against the debtor’s assets and (iii) the right to transfer, encumber or otherwise dispose of any assets of the debtor. The High Court may also grant appropriate relief upon the recognition of a foreign non-main proceeding including an automatic stay. The High Court may also entrust the distribution of all or part of the debtor’s assets located in the Marshall Islands to the foreign representative. Furthermore, upon the recognition of a foreign proceeding, a foreign representative may intervene in any proceedings in which the debtor is a party.

III. Cooperation with Foreign Courts and Foreign Representatives

Under the Act, the High Court and entities administering a reorganization or liquidation are obligated to cooperate to the maximum extent possible with foreign courts. Cooperation may be implemented with the following measures:

a. appointment of a person or body to act at the direction of the High Court;
b. communication of information;
c. coordination of the administration and supervision of the debtor’s assets and affairs;
d. approval or implementation by courts of agreements concerning the coordination of proceedings; and
e. coordination of concurrent proceedings regarding the same debtor.

IV. Concurrent Proceedings

The Act also contemplates concurrent proceedings. Under the Act, if a foreign main proceeding is recognized, any proceeding under the laws of the Marshall Islands relating to insolvency must be limited to the assets of the debtor that are located in the Marshall Islands. Furthermore, the Act provides the High Court with the authority to adjust relief that may be granted to allow for the coordination of multiple proceedings. Moreover, creditors that have received payments in respect of its claim in a foreign state may not receive a payment for the same claim in a proceeding before the High Court.



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