Congressman Pedro Pierluisi yesterday reintroduced legislation that would empower the government of the U.S. territory of Puerto Rico to authorize one or more of its government-owned corporations, if they were to become insolvent, to restructure their debts under chapter 9 of the U.S. Bankruptcy Code, according to a press release. State governments themselves are not eligible to adjust their debts under chapter 9 of the Code. Rather, only a “political subdivision or public agency or instrumentality of a State” — called a “municipality” in the Code — can adjust its debts under chapter 9. Another provision in the Code provides that the term “State” includes Puerto Rico, “except for the purpose of defining who may be a debtor” under chapter 9. Puerto Rico’s exclusion from chapter 9 led the territory’s government, in July 2014, to enact the “Puerto Rico Public Corporation Debt Enforcement and Recovery Act,” which sought to authorize certain government-owned corporations to restructure their debts. Multiple investment firms that own Puerto Rico bonds sued the Puerto Rico government in U.S. federal district court, arguing that the Recovery Act — which differs from Chapter 9 in numerous respects — violates the U.S. Constitution and the Puerto Rico Constitution. The U.S. district court in Puerto Rico on Feb. 6 issued a decision that the Recovery Act is preempted by the U.S. Bankruptcy Code and is therefore invalid under the Supremacy Clause of the U.S. Constitution. “In the wake of the district court’s decision, it is more clear than ever that Congress should act swiftly to amend the U.S. Bankruptcy Code to empower the government of Puerto Rico to authorize its insolvent government-owned corporations to restructure their debts under chapter 9,” Pierluisi said. “If Congress does not act, government-owned corporations in Puerto Rico will be left without any legal framework — at either the federal or territory level — to adjust their debts.” A hearing on the legislation in the House Judiciary Committee is expected late this month.
To read the full text of H.R. 870, the “Puerto Rico Chapter 9 Uniformity Act,” please click here: https://pierluisi.house.gov/sites/pierluisi.house.gov/files/Puerto%20Ri…
