The Fiscal Oversight Management Board (FOMB) responsible for negotiations of Puerto Rico’s debt filed an emergency appeal Monday before Judge Laura Taylor Swain to file a sealed motion detailing the possible causes of action and the entities that could be sued by the Committee of Special Claims and the Committee of Unsecured Creditors (UCC) for the fiscal collapse of the island.
The appeal filed by the lawyer of the Committee of Special Claims of the FOMB, Edward S. Weisfelner, of the firm Brown Rudnick, seeks to comply with a directive of Swain who, last week, ordered the tax entity to present in writing the possible causes of action against third parties, in the light of the close expiration of the term to sue those responsible for the indebtedness and collapse of Puerto Rico.
These lawsuits must be filed under specific claims such as fraud or have aggravated the financial condition of the debtor to push him to bankruptcy. The Bankruptcy Code establishes, however, that such claims must be filed within two years after the bankruptcy petition. In the case of the Title III process of the central government, that period expires on May 2.
Last week, Swain held an emergency hearing after the FOMB and the UCC reached an agreement on how to sue third parties.
However, given that the Special Claims Committee of the FOMB had refused to sue individuals and limit the reasons for proceeding against third parties, the UCC -informed- turned to Swain for the court to appoint him a trustee of the government and can take actions in name of the government in order to gather resources that would be made available to the creditors.
From the perspective of the FOMB, although there is still interest in recovering the fees charged by the investment banks for issuing allegedly illegal debt, it would be difficult to process claims under the premise of fraud or other speculative theories, since “there are serious impediments to prescription, defenses and other issues in question the wisdom of spending state assets on speculative claims against individuals”.
However, for the UCC, the FOMB rejects taking forceful actions, missing only weeks for the prescription of the period to sue third parties and its new position only adds to “a pattern of obstruction” for the UCC to investigate the fiscal situation of the island and look for those responsible.
The motion of the FOMB joins to present the list of possible defendants and causes of action in a sealed motion is now attached to other requests before Swain. That resource to establish the rules of the game to decide the legality of some $6 billion in unconstitutional bonds and the UCC’s request to act as a government trustee.
This week, Swain will conduct a general overview of the Title III cases, where both claims will be discussed and the FOMB should offer an update of the negotiations with the creditors.
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