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COMMONWEALTH OF PUERTO RICO th17 rdAssembly3 Session Legislative Regular
SENATE PUERTO RICO
P. S. ____
March 2014 Presented by Senators Rosa Rodriguez and Power Nadal Referred to theCommittee on____________________
To create the "Restructuring Act Public Corporations", to provide for the restructuring process to be followed in the event of insolvency prosecutor of a public corporation, establish its applicability and scope and to establish the process to be followed in such cases,., and express their translation into English
The Legislature of Puerto Rico understands prevailing delete the existing legal uncertainty about a possible economic insolvency of public corporations. Such uncertainty has undermined investor confidence in the government, thus affecting access to financing by public corporations and the Commonwealth. Faced with a potential fiscal insolvency, the least onerous remedy is that both employees and creditors to negotiate a plan to facilitate the restructuring of financial obligations. This measure provides us with a well designed method that will address these situations in an efficient and organized manner. Legislation regarding financial insolvency is among the most important legal rules of a jurisdiction. The U.S. Constitution authorizes Congress to establish laws regarding this matter. However, states are not without tools to address the issue of economic insolvency. The Commonwealth of Puerto Rico has legal access to these tools because for these particular issues has the same level of autonomy and a federated state equivalent treatment.
Examining Board v Flores deOtero,426 U.S. 572, 594 (1976). Governments, in the exercise of their police power of the state(policepower)have within their power to pass legislation to address the insolvency of legal and natural persons. As part of that power is the power of the courts to appoint trustees to administer insolvent companies. Similar legislation is widely accepted in the states, and has been particularly important in the liquidation and reorganization of companies in the technology industry. Mann, "An Empirical Investigation of Liquidation Choices of Failed High Tech Firms", 82 Wash. ULQ 1375 (2004). The existence of these remedies seeks to eliminate the legal uncertainty about the rights of creditors that is so detrimental to the business environment. The only law in our legal system that caters insolvency is Chapter XVII of the Civil Code. However, this rule is outdated and lacks the necessary procedural law to be implemented effectively. In deference to the fiscal autonomy of the Commonwealth of Puerto Rico, federal law does not occupy the field in this area. The usual federal remedies are not available to restructure the debt of public corporations and municipalities of Puerto Rico. The Constitution of the United States in its Section 8, Article I empowers Congress to establish uniform laws on economic insolvency. However, for centuries the Supreme Court of the United States has recognized that while this power is not exercised by Congress, states are not prevented from legislating on the subject. Sturges vCrowinshield,17 U.S. 122, 196 (1819). Once Congress passed legislation on the subject, he held the field in relation to debtors that are covered by federal law. However, federal law explicitly excludes Puerto Rico Chapter 9 of the Bankruptcy Code. 11 USC 101 (52). This chapter contains the means to restructure the debt of municipalities, which for purposes of this Chapter includes public corporations. The only way that Puerto Rico would be unable to legislate on the subject, in the absence of federal law, is whether the Bankruptcy Code prevents it. Such impairment, governed by the doctrine of "occupied field", not presumed if not explicit. Altria Group, Inc. v.Good,555 U.S. 70, 76 (2008). If Chapter 9 does not apply to Puerto Rico, it could hardly be concluded that the field is occupied in the case of public corporations.
The Supreme Court of the United States has decided that was the intent of Congress invest the Commonwealth of Puerto Rico of rights and similar to a federal state authority. The First Circuit Court of Appeals has ruled that Puerto Rico is sovereign, that was the main consideration that motivated the Supreme Court in AsburyPark. U.S. v. AndinoLopez,831 F.2d 1164, 1168 (1st. Cir. 1987), cert. denied 486 U.S. 1034 (1988). Consequently, this Legislature has the power to make a law directed to give certainty to creditors on the possibility of restructuring the debt of eligible public corporations. Existing loophole in our system creates uncertainty unacceptable. Under these circumstances this Legislature hereby establishes a system to reorganize debts and obligations, support the federal legislation so permits. Sturges v.Crowinshield,supra; Brown v.Smart,145 U.S. 454, 457 (1892), International Shoe Company v.Pinkus,278 U.S. 261, 264 (1929). The restructuring of these government debts can benefit both public corporations as bondholders receiving the certainty it provides a specific legal framework for this. AsburyPark,316 U.S. 502, 504 (1942), cited with approval in U.S. Trust Co. . of New York v. New Jersey 431 U.S. 1, 28 (1977). This Act aims to implement this authority of the Commonwealth of Puerto Rico within the framework of its constitutional relationship with the United States of America. This Act creates a process for eligible public corporations to restructure their debts under the supervision of the Court and consensus with creditors. That way we can protect our public corporations while fulfilling our obligation to the creditors. This Act incorporates the scrutiny demanded the Supreme Court of the United States at U.S. TrustCo.,supra to modify debt agreements. Thus, the public interest to have efficient public corporations while the rights of the bondholders and other creditors are protected is protected:..
ENACTED BY THE LEGISLATURE OF PUERTO RICO Section 1 the "Law on Restructuring of Public Corporations" is created, known in English as "Public Corporation Restructuring Act" for its English text read as follows:
"PUBLIC CORPORATION ACT RESTRUCTURING Article 1 Eligible Public Corporation under.. The Court of First Instance (Superior Part), upon presentation of a Resolution Article 2 or a petition by a creditor under Article 3 will be empowered to declare a corporation eligible for a public plan under Article 10 if from the facts presented to it and after a public hearing it so specify. A public corporation Shall be eligible Under This Act if (i) it is unable to pay its debts from its own means Peak Gust Become due or (ii) its liabilities Exceed its assets. The venue for said Shall be proceeding in the Court of First Instance (Superior Part) where the headquarters of said public corporation is located. All Creditors of the public corporation Shall be made parties of the proceedings to be published by notice in Such Manner and Given as ordered in the Rules of Civil Procedure. Also Notice Shall be posted in the web page of the public corporation and of the Puerto Rico Government Development Bank. Any creditor of the public corporation May Appear and assert his rights. . Proceedings All Relating to the debt of the public corporation Shall be consolidated in the proceeding Described in this article. Article 2 Resolution of Eligibility . The Board of Directors, Trustees or other person or Persons with ultimate Control over a public corporation can pass resolution declaring eligible to Themselves Under This Act, subject to the process spelled out in Article 1. If the Governor so authorizes it, said resolution will be filed in the Court of First Instance (Superior Part) Article.3 . Petition by a Private Creditor . Upon the verified petition of any Creditors of a Public Corporation, made on Behalf of .
Themselves and all other Creditors of the public corporation, for a declaration of eligibility Under This Act, the Court of First Instance (Superior Part) after a public hearing May initiate proceedings under Article 1 Article. 4 Content of Resolution . The resolution declaring eligibility under Article 2 Shall state: (1) the Reasons Why the public corporation is eligible Under This Act and Whether or not it is Caused by lack of liquidity, (2) recommendations as to the interim management of the public corporation, (3 recommendations as to a plan for restoring solvency if possible, and Complying with Existing Obligations and liquidation IF NECESSARY ..)Article 5 Content of the Petition by a Private Creditor allege. In the petition Described in Article 3 the Creditors Shall (1 ) That the public corporation is or will be unable to pay in full the terms According To Their claims Proposed to be adjusted or composed and perform its public functions and preserve its income, (2) its recommendation Regarding a plan for the adjustment or composition of debts, (3) and its recommendation is Substantially That Measured by the capacity of the public corporation to pay, is in the interests of all the Affected Creditors thereby, and is not detrimental to other Creditors of the public corporationPower.. Article 6 of the Court . The Court Shall have all powers Necessary and proper fashion to provisional remedies, issue orders, supervise the Board of Receivers, appoint experts, approve a final plan and
any other power Necessary to Fulfill its role Article.7 . Board of Receivers . The public corporation That hasbeen Declared eligible Under This Act Shall, while the proceedings go on, be Administered by a Board composed of Receivers of five members. The Governor Shall name 2 of the Members with the advice and consent of the Senate, and the Court Shall name 3. The Court Shall the powers and Duties Establish and supervise the Board of Receivers and Shall Have the Power to issue orders as to execute its role Necessary Article.8 . Power of the Court to modify contracts, Processes and Consolidate issue stays . (A ) The Court Shall Have the Power to modify the price provider and content of contracts or any other Obligations of the public corporation. In doing so the Court will not impair contractual Obligations Significantly Unless it is reasonable and Necessary to serve an important public purposepurpose. (b) For the ministering purposes of this article, includes an important public (1) the obligation to Comply with Existing contracts , even if imperfectly in view of present and Circumstances;.(2) the stability and continuity of essential public infrastructure, utilities and services (c) The Court Shall Have the Power to Consolidate Within the case any proceeding related to a debt of the public corporation or the payment thereof. It will Also have the power to stay proceedings other such.. Article 9 Good Faith of the Board of Receivers .
The Board of Receivers Shall act in the best interest of the Creditors and the public corporation Article.10 . The plan. In any proceeding under Article 1 When the public corporation you hasbeen eligible Declared, after a hearing on the plan Proposed or on the plan as modified by order and if Such plan as Proposed or modified is approved in writing by Creditors Representing seventyfive per cent in amount of the indebtedness and thereby Affected by the public corporation and the commission, the Court authorize and approve Such Jun adjustment or if the Court Determines composition (1) That the public corporation is unable to pay in full the terms According To Their claims Proposed to be adjusted or composed, and perform its public functions and preserve the value of property subject to taxation, (2) That the adjustment or composition is Substantially Measured by the capacity of the public corporation to pay, (3) That it is in the interest of all the Affected Creditors thereby, and (4) That it is not detrimental to other Creditors of the public corporationCreditors,... Article 11 Approved plan binding on all Substituted Obligations The plan of adjustment so Authorized and approved under Article 10 Shall be forthwith and without any further action of any kind binding upon all the Creditors included in the plan, whether or not They Appear in the proceeding. In so far as said Provides for the substitution of any new plan bonds, notes or other Obligations of the public corporation in place of any outstanding bonds, notes or other Obligations, or claims then outstanding, Such substitution Shall be effected from and after date Such May be fixed as in Such order. In the event a plan That Shall be Authorized and approved pursuant to this Act the Court
Shall Retain jurisdiction of Such proceeding and thereafter no creditor Whose claim is included in Such adjustment or composition Shall be Authorized to bring any action or proceeding of any kind or character for the enforcement of his claim except With the permission of the Court and then only to recover and enforce the rights Given him by the adjustment or composition.. Article 12 Power to liquidate . reorganization Should not prove possible, the May Court order the liquidation of the public corporation. . In so doing it will secure the Creditors of the public corporation the greatest possible degree of repayment"Section Restructuring Act Public Corporations. 2 is created the" "to your Spanish text read as follows:"AN ACT RESTRUCTURING CORPORATION PUBLIC "Article1 . Public Corporation Eligible . The Court, Superior Court, upon the filing of a resolution under Article 2 of this Act or a request by a creditor under Article 3 of this Act, may declare a public corporation eligible for a Plan under Article 10 if the facts presented at a public hearing that eligibility is determined. A public corporation shall be eligible under this Act if (i) is unable to pay its debts when their own expire or (ii) its liabilities exceed its assets. Such a process is carried out in the Upper Chamber of the Court where the headquarters of the public corporation are located. All creditors of the corporation shall be part of the process for notification to be posted and filled out the same way they order the Rules of Civil Procedure. Notice is also placed in the website of the public corporation and the Government Development Bank for
Puerto Rico. Any creditor of the public corporation may appear and exercise their rights. All processes related to the debt of the public corporation were consolidated in the process described in this Article.. Article 2 Resolution Eligibility .'sBoard of Directors, Trustees and another person or persons with ultimate control over a public corporation may approve a resolution declaring eligible under this Act, subject to the process described in Section 1 of this Act authorizes the Governor If so, this resolution shall be filed in the Superior Court of the Court of First Instance jurisdiction.. Article 3 request for Private Creditor . The Court may initiate the process described in Section 1 to make a declaration of eligibility, after conducting a public hearing, under Article 1 at the request of any creditor of a corporation publishes, made his name creditors and other public corporation ...Article 4 Content Resolution The resolution declaring eligibility pursuant to Section 2 shall state: (1) the reasons why the public corporation is eligible under the provisions of this Act and if or caused not by lack of liquidity; (2) recommendations on the interim administration of the public corporation; (3) recommendations if necessary on a plan to restore solvency if possible, fulfilling existing obligations or liquidated if needed.. Article 5 Content Private Creditor Petition creditors. The petition described in Article 3 shall argue that the (1) corporation is issued or will be unable to pay according to its terms be adjusted to their
obligations, fulfill their public duties and preserve their income, (2) their recommendations for a plan to adjust its obligations, and (3) its recommendations are a substantial relation to the capacity of the public corporation to pay, are in the interests of affected creditors and are not detrimental to the interest of others creditors of the public corporation.. Article 6 Authority Tribunal. The Tribunal shall have all powers necessary and appropriate to provide provisional remedies, issue orders, monitor the Committee of Trustees appointed under this Act, appoint experts and approve a Final Plan any other power necessary to fulfill their duties. Article 7 . Committee of Trustees . The public corporation has been declared eligible under this Act shall, while they continue the proceedings, be administered by a Board of Trustees composed of five (5) members . The Governor shall appoint two (2) of the members with the advice and consent of the Senate, and the Court shall appoint three (3) of them. The Court shall establish the powers and duties and supervise the Committee of Trustees and shall have power to issue the necessary orders to execute their role.. Article 8 Power of Court to modify contracts, consolidate processes and issue injunctions. (1) The Tribunal shall have the power to modify the provisions and contents of any contract or other obligations of the public corporation. In doing so the Court does not significantly impair contract unless it is reasonable and necessary to serve an important public interest obligationsincludes:.
(2) For purposes of this Article, an important public interest a. Obligation to fulfill existing contracts, albeit imperfectly in light of the and b. circumstances.stability and continuityinfrastructure, utilities and essential public services (3) The court shall have power to consolidate within the procedures under Article 1 any case involving debt eligible public corporation or payment of such debt. Also has the power to stop other related procedures. Article 9 . Buena Fe of the Trust Committee. The Committee of Trustees act in the best interest of creditors and the public corporation..'s Article 10 Plan. In any proceeding under Article 1, in which the public corporation has been declared eligible, after a hearing on the proposed plan or any subsequently amended, and if the plan as it has been proposed or amended be approved by creditors representing seventyfive percent (75%) of the amount of the obligations affected by the plan and the public corporation, the Tribunal may authorize and approve the plan if it determines that (1) the public corporation is unable to pay its obligations under the terms to be adjusted, and perform their public functions preserving the value of their taxable property, (2) adjusting the debt is substantially related to the ability of the public corporation to pay, (3) the plan is in the interest of all affected creditors and (4) it is not to the detriment of other creditors of the public corporationcreditors... Article 11 approved Plan is binding on all replaced obligations The authorized and approved under Article 10 adjustment plan will, no other action of any type, binding on all creditors included in the plan, whether or not part of the necessary
procedures. To the extent that the plan provides for the replacement of bonds, notes or other obligations of the public corporation instead of bonds, notes or other obligations already issued, such substitution will take place and be effective from the date specified in the plan. In the event that a plan authorized and approved under this Act, the Court shall retain jurisdiction over this process and in subsequent retain jurisdiction over this process and thereafter no creditor may file an action or proceeding of any kind to enforce their claim except with the permission of the Court and only to recover and enforce rights under the plan.. Article 12 Branch to settle . Failing this reorganization, the Court may order the liquidation of the public corporation. In doing so I will allow creditors of the public corporation the greater repayment possible of." "Section3 . Translation . Had conflict between the English version and Spanish Restructuring Act Public Corporations "will prevail English version.. Section 4 Saving Clause . Such legislation shall be construed as, and have the maximum extent possible, within the federal constitutional law and the supremacy of the Bankruptcy Code of the United States.. Section 5 Separability. Although one or more articles, sections, paragraphs, subparagraphs, sentences or clauses of this Act is declared unconstitutional or invalid, the remainder of the Act shall continue in full force.. Section 6 Effective . This Act shall take effect immediately after approval.
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