A week ago, the Board’s Special Claims Committee (SCC) and the Unsecured Creditors Committee (UCC) sued hundreds of suppliers, government bondholders and bankers expecting to recover millions of dollars in payments that could have been illegally made before the Puerto Rico bankruptcy process.
Now, after lawyers and business organizations on the island warned in El Nuevo Día about a possible crisis of access to justice and the potential adverse impact that the Board’s actions could have on hundreds of local businesses, the fiscal entity seems to be rethinking the strategy.
Yesterday, the Board director and former judge Arthur González revealed that the entity works in an “informal” process so that suppliers or those who have signed negotiation agreements can demonstrate that the payments they received were legal since they occurred in the ordinary course of the government's activities.
González said that designing the process could take about a month and added that the Board resorted to court before the deadline in statutory limits provided in the Bankruptcy Code for a debtor to file actions against third parties.
While this process takes shape, sources say that in little more than a week, the Board will ask judge Laura Taylor Swain to temporarily extend the deadline for contractors to answer the lawsuits against them.
“The idea about resolving the issue with the suppliers who were sued, as Judge González said, is to try to make the process as efficient and as cheap as possible,” explained the Board’s General Counsel Jaime El Koury.
El Koury argued that the Board considers using mediation to reach understandings with suppliers, and some “informal” mechanism to allow exchanging information between the parties without the need to hire lawyers.
Between April 30 and May 2, the SCC sued about 320 contractors seeking to claw back payments made by the government between 90 days and four years before to the filing of PROMESA Title III. During that week, the SCC and the UCC also sued hundreds of individuals who are island bondholders and investment banks who may have allegedly enriched themselves at the cost of Puerto Rico’s financial collapse.
In the case of the bondholders, González said that “the ability to recover the principal and interests (paid to bondholders) is 100 percent contingent on the bonds themselves being invalid.”
According to González, the lawsuits against bondholders are a precautionary measure that would only be activated if the bonds questioned by the Board are declared invalid. If that were the case, he added, only bondholders with $ 2.5 million or more in Puerto Rico bonds would be subject to the Board’s claw-back action.
The fiscal plan
González made his statements during the sixteenth public meeting of the Board, the entity that certified the new projections and estimates in the central government's fiscal plan and extended its framework of action to municipalities o by declaring them covered under PROMESA.
Yesterday, just as the El Nuevo Día Survey revealed that citizens support to the Board collapsed to the point of demanding its current leadership to leave, the fiscal entity approved a program of revenues, expenses and structural reforms that keeps Puerto Rico in red with everything and the injection of federal funds associated with the 2017 hurricane season.
The certified fiscal plan seeks to direct more resources to education, health, and safety in exchange for requiring additional cuts in other items, such as hiring professional services.
The new route the government would follow, according to the Board’s Executive Director Natalie Jaresko, acknowledges that the release of post-María federal assistance will take longer than projected. However, the potential benefits of adopting structural reforms such as working for social assistance recipients and changing certain permit procedures and transactions that are essential to do business.
The plan seems to refocus part of the funds to critical programs and to improve the conditions of essential public servants such as police officers and teachers.
Similarly, despite government objections, the Board’s certified plan insists on modifying pensions - with less aggressive assumptions - and leaves almost unaltered the goal of cutting government spending by about $ 1,024 billion for the next fiscal year.
