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U.S. Supreme Court to Hold Hearing in March Over Puerto Rico’s Bankruptcy Law

By on January 29, 2016

SAN JUAN – On March 22, the U.S. Supreme Court will listen for an hour to oral arguments over the validity of a bankruptcy law that was enacted by the Puerto Rico Legislature in 2014, but struck down so far at the federal court district and appellate levels, the top federal court announced Friday.
A spokeswoman for the Puerto Rico Justice Department confirmed to Caribbean Business the hearing’s date on the court’s schedule.

The court decided on Dec. 4 to grant the Puerto Rico government’s petition to review the enforceability of the Puerto Rico Public Corporation Debt Compliance & Recovery Act, which seeks to provide a bankruptcy regime for the island’s battered public utilities, which account for a third of Puerto Rico’s roughly $70 billion in debt. A decision by the U.S. Supreme Court on the matter is expected by June.

With no access to a legal framework to restructure its debts under federal law, namely Chapter 9 of the U.S. Bankruptcy Code, the commonwealth attempted in 2014 to establish its own municipal bankruptcy mechanism with the Recovery Act, but it was challenged right away after its enactment by a group of bondholders.  

The Alejandro García Padilla administration is posing the following question to the U.S. Supreme Court: “Whether Chapter 9 of the federal Bankruptcy Code, which does not apply to Puerto Rico, nonetheless preempts a Puerto Rico statute creating a mechanism for the Commonwealth’s public utilities to restructure their debts.” Creditor groups are asking whether federal law preempts the Recovery Act, and whether the 1984 amendment “precluding Puerto Rico from using Chapter 9 of the Code allows Puerto Rico to enact its own version of Chapter 9.”

In addition to moving on the U.S. Supreme Court front, the commonwealth government is also banking on congressional action, particularly over access to Chapter 9, during the first semester of the year, as it tries to avoid additional defaults amid a debt-service schedule that becomes steeper this summer. House Speaker Paul Ryan (R.,Wis.) has said the lower chamber aims to come up with a solution to the Puerto Rico issue before the end of March, but it is yet to be known whether the Republican-controlled Congress will provide the commonwealth with debt-restructuring tools in time.


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