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Puerto Rico fiscal agency rejects Title III bankruptcy legal fees be allowed to increase 5% 

By on March 13, 2019

Says it would only support a 2% increase because indebted agencies need the money ‘for essential services or other expenses’

SAN JUAN – The Puerto Rico Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym) on Tuesday rejected a court fee examiner request for an increase in the rates paid to professionals working on the island’s bankruptcy case.

On Nov. 27, the fee examiner submitted a motion to impose certain standards for rate increases. The First Presumptive Standards Motion proposed, among other things, that “rate increases imposed by professionals submitting fees for Court approval shall be presumptively unreasonable unless … the rate increases do not exceed … five percent of the rates previously charged by any owner, director, partner, shareholder, special counsel, or senior counsel; or ten percent of the rates previously charged for any associate or non-owner professional engaged in his or her field of practice for a period of 10 or fewer years.”

During a Dec. 19 hearing, the court denied the request. The judge noted that a presumptive ceiling equal to the annual rate of inflation in the New York metropolitan area was 2 percent.

The fee examiner, Brady Williamson, submitted a second set of presumptive standards but did not change its original request namely: “(i) a five-percent-a-year presumptive limit on rate increases for partners/shareholders and (ii) a seven-percent-a-year presumptive limit on ‘step’ or seniority increases for associates.”

Puerto Rico’s fiscal agency maintains the aforementioned increase is too high.

“AAFAF respectfully submits that the Court should not accept the presumptive standard for the Rate Increases included in the Second Presumptive Standard Motion, and that, instead, it should follow its own recommendation as expressed at the Hearing of allowing a two percent-a-year presumptive limit on rate increases for professionals in these Title III cases,” the agency said, adding that the “concerns alone merit the denial of the Rate Increases and the adoption of the two-percent-a-year presumptive limit initially articulated by the Court.”

While the fee examiner used reports from entities, such as Citi Group, Aafaf noted that other reports showed more modest growth rates than those described by Williamson.

“The 2019 Report on the State of the Legal Market shows that average rate increases during 2018, which was a historically high year, were lower, in the three percent range, than the Rate Increases proposed by the Fee Examiner,” Aafaf said.

The agency also pointed out that, as of Sept. 30, professionals requested more than $306 million in interim compensation.

“The Debtors do not have infinite resources; each dollar spent on professional fees is one dollar less that is available for essential services or other expenses of each Debtor,” Aafaf said.

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