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Court rolls out procedure for requests to lift stay in Puerto Rico bankruptcy

By on August 25, 2017

Editor’s note: The following article originally appeared in the August 24 print edition of Caribbean Business.

SAN JUAN — More than 30 requests have been filed to date by individuals and companies seeking to lift the stay on creditor remedies that is granted as part of Puerto Rico’s bankruptcy cases under Title III of the federal Promesa law.

Judge Laura Taylor Swain has timely addressed them all following their filing, promptly scheduling dates for the central government to reply and solving the dispute shortly after. The court has lifted the stay to some extent in more than a dozen of these petitions, even amid the commonwealth’s objection in some instances.

As Puerto Rico’s bankruptcy proceedings continue—and more stay-relief actions are expected—Judge Swain rolled out on Aug. 17 a new procedure for the filing of lift-of-stay petitions. She intends to have parties try to hash out differences out of court before filing a single document on the matter.

The U.S. District Court of Puerto Rico. (Juan J. Rodríguez/CB)

The reasons behind the lift-of-stay actions already filed vary in nature, from the forfeiture of cars and just compensation petitions over private property allegedly taken by the commonwealth, to payment pursuant to judgments that have been entered, labor dispute claims and damages, including traffic accidents and Special Education claims.

According to the new rules, those who intend to seek relief from the commonwealth’s bankruptcy stay protection must now send an email to the counsel of the financial control board and the government to let them know about their intent. This must take place at least 15 business days before the filing of the action.

The notification needs to include, among other elements, who intends to present the action, what the individual or company seeks relief from in the stay, and why the court should lift the latter.

“During the Lift Stay Notice Period, the Debtors and the movant shall meet and confer (in person or telephonically) to attempt to resolve, in whole or in part, the movant’s request for relief from the automatic stay,” reads the new rule of the game approved by Judge Swain on Aug. 17.

If the commonwealth government agrees the stay should be lifted in a particular case, the parties would present the court with a stipulation to that end. If it disagrees or they fail to reach an agreement within the 15-day period, then a lift-of-stay relief action can be filed for the court to address.

“If movant did not meet and confer with the Debtors prior to filing a Stay Relief Motion, and cannot show exigent circumstances for failing to meet and confer, the Court shall deny the [motion] without prejudice until the movant has met and conferred with the Debtors,” the new procedure further provides.

In determining whether the stay should be lifted in a given case, the court ponders whether cause has been shown to do so, after analyzing a dozen factors set out by In re Sonnax Indus. Inc., a case solved by the U.S. Court of Appeals for the Second Circuit in 1990.

The factors include, among others, whether granting the lift of stay would result in partial or complete resolution of the matter; lack of connection or interference with the bankruptcy case; the existence of a specialized forum to address the issue; the involvement of third parties; and the impact of the stay and “balance of harms” on parties.

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