Board requests endorsement for banks (horizontal-x3)
The motion by the OB to use the funds in bank accounts would be one of six filed by the federal entity that will be examined by judge Taylor Swain next May 17, in the district court of Puerto Rico. (Archivo / GFR Media)

The Oversight Board (OB) requested federal district judge Laura Taylor Swain to allow it to continue using the bank accounts it currently holds by assuring that, otherwise, the government could experience “irreparable damage” by being prevented from providing health, security, and welfare services to the population.

According to the motion filed on Wednesday night, the federal entity that assumed the role as debtor on behalf of the Puerto Rican government petitioned judge Taylor Swain, in order to clear the doubts over the protection of Tittle III, to issue an order allowing banks to transfer, accept deposits or transfers without it representing any obligation for the deposits institutions.

“Such an order will minimize the opportunity for confusion or misunderstandings and will reduce the need for future interventions by the court to address related matters,” the motion states.

According to the recourse by the OB, although, under PROMESA, certain restrictions in the bankruptcy code that require authorization to use the cash systems of the entity that petitions under that remedy don’t apply, “the banks may be in doubt” as to whether continue conducting transactions for the government agencies.

Despite it being similar to a bankruptcy process, Tittle III of PROMESA will be intended to straightening out the government’s finances, allowing the state, represented by the OB, to modify its debt obligations with all kinds of creditors.

The money in private banks

Last year, when the Government Development Bank (BGF, by its Spanish acronym) lost its validation as a banking entity of the Federal Reserve, the Government transferred dozens of accounts to Banco Popular and Citigroup. 

With the move, the Government began depositing fresh revenues, but also those the General Fund demanded from public corporations as a result of the Moratorium Law. Following the decision, the legal advisers for the Ad Hoc group of General Obligations warned Banco Popular they would take action if the so-called funds subject to “claw back” were not used to pay for constitutional debt.

Now, according to the OB, banks would hesitate to render banking services to the Government given “the lack of familiarity” with PROMESA.

First hearing is set

The motion by the OB to use the funds in bank accounts would be one of six filed by the federal entity that will be examined by judge Taylor Swain next May 17, in the district court of Puerto Rico.

Yesterday, Taylor Swain issued her first order on the case, in which she accepts a suggestion by the OB to hold a hearing on the date scheduled and establishes specific conditions so lawyers, reporters, and citizens may attend the judicial process.

Among other things, the judge must consider and order the joint administration of cases under Tittle III that may be filed and authorize the OB to notify “the tens of thousands of creditors” of the Government through newspaper notices in Puerto Rico and the United States, as was done in the case of Detroit and that of Jefferson County.

To expedite the case, the OB suggested Taylor Swain to adopt the local rules on the Bankruptcy Code, which jurisprudence will serve as the reference in Tittle III cases.

$100,000 in clerical work. On the other hand, and in spite of the fact that filing of Tittle III for Puerto Rico was common knowledge, the OB told the judge that, instead of having two days to submit the list of the government’s creditors, as established by local rules, to give it almost two months for the federal entity to submit its list of creditors and an additional two months to review and determine how much and to whom Puerto Rico owes.

The OB said, also, that it will require a clerical services firm to process the documentation of bankruptcy cases and that, to that end, it retained Prime Clerk. The firm will receive a $100,000 advance payment to start working.

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