Sunday, May 20, 2018

Municipalities committee withdraws from Puerto Rico bankruptcy cases

By on August 17, 2017

SAN JUAN — The Ad Hoc Puerto Rico Municipalities Committee, which represents 11 island towns, notified federal Judge Laura Taylor Swain on Wednesday it is withdrawing from the commonwealth’s bankruptcy cases under Title III of the federal Promesa law.

The decision comes after the federal court denied on Aug. 8 the group’s request to appoint a committee that officially represents the interests of the 78 municipalities of Puerto Rico in Title III cases.

“In view of the recent ruling of this Court to deny the request for the creation of an official municipalities committee and the serious lack of resources currently available to the municipalities, the Puerto Rico Municipalities Ad Hoc Committee has reached the painful decision to withdraw its appearance and intervention in the Title III PROMESA proceedings at this time,” the motion reads.

Puerto Rico municipalities ask Judge Swain to appoint committee

The document adds that the committee’s withdrawal doesn’t mean it won’t be reconfigured in the future. It also warns that all municipalities reserve their individual rights related to Title III proceedings, as part of a reconstituted ad hoc committee or a new collective.

The ad hoc group was made up by Mayagüez, Isabela, Quebradillas, Guayama, Cabo Rojo, San Germán, Adjuntas, Guayanilla, Guánica, Añasco and Barceloneta.

In its attempt to secure the appointment of an official committee to defend municipalities in the bankruptcy proceedings of the central government and other public entities, the group retained the services of Rochelle McCullough, a Dallas-based law firm. Locally, the group was represented by Godreau & González Law.

Last July, the ad hoc group asked Judge Swain to authorize the creation of an official committee for municipalities, after the U.S. Trustee—in charge of appointing official committees in bankruptcy cases—refused the request.

To date, only two official committees have been appointed in Puerto Rico’s bankruptcy process, one representing retirees and another for uninsured creditors.

A breakdown of second omnibus hearing on Puerto Rico’s bankruptcy

According to the ad hoc committee of municipalities, towns should be treated differently than other creditors, pointing out the various claims they have against the central government and some instrumentalities. The group mentioned the multimillion-dollar cuts in the current budget to the transfers received by towns from the General Fund, as well as the situation with the Government Development Bank, where municipalities’ deposits have been frozen for more than a year.

During the Aug. 9 omnibus hearing, Judge Swain said that while she acknowledges the municipalities’ frustration over the reduction in funds received from the central government, the towns failed to prove a right or claim on that money, which would make them creditors, as defined by Title III.

In opposition to the ad hoc committee’s request, counsel for the U.S. Trustee, the central government and the financial control board also argued that, “unfortunately,” applicable rules only allow committees for individuals. Therefore, municipalities would be barred from obtaining an official committee to represent them.



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