News & Events

Puerto Rico’s Member in the U.S. House of Representatives Resident Commissioner Pedro Pierluisi Reintroduces the Puerto Rico Chapter 9 Uniformity Act

The Resident Commissioner of Puerto Rico, Pedro Pierluisi, yesterday reintroduced U.S. Houseof Representatives Bill No. 870 (the “Bill”) to amend Title 11 of the United States Code, known as theUnited States Bankruptcy Code (the “Bankruptcy Code”). The Bill, cited as the “Puerto Rico Chapter 9Uniformity Act of 2015”, is intended to amend the Bankruptcy Code to include Puerto Rico as a “State”(it is currently excluded) for purposes of who may be a debtor under Chapter 9 of the Bankruptcy Code.This inclusion would allow for the restructuring of municipal debt. State governments are not eligible toadjust their debts under Chapter 9 of the Bankruptcy Code, but a “political subdivision or public agencyor instrumentality of a State” can adjust its debts under Chapter 9. Pierluisi had introduced the “PuertoRico Chapter 9 Uniformity Act of 2014” during the 113th Congress on July 31, 2014. At that time, themeasure was referred to the Subcommittee on Regulatory Reform, Commercial and Antitrust Law, but itdid not progress in that Congress.

Yesterday’s re-introduction takes place in the aftermath of the U.S. District Court for the Districtof Puerto Rico’s decision of last Friday, February 6, 2015, declaring the Puerto Rico Public CorporationDebt Enforcement and Recovery Act (the “Recovery Act”) unconstitutional. The Recovery Act wasapproved by the administration of Governor Alejandro Garcia Padilla on June 28, 2014 and was intendedto enable some public corporations to restructure their debts. Puerto Rico is included in the BankruptcyCode’s definition of a “state” for all purposes, except for filings under the provisions of Chapter 9 thereof.Given the U.S. District Court’s unconstitutional ruling, Resident Commissioner Pierluisi reintroduced theBill to amend the Bankruptcy Code to enable government-owned corporations, like the Puerto RicoElectric Power Authority, to seek relief pursuant to Chapter 9 of the Bankruptcy Code.

The Bill specifically proposes an amendment to Section 101(52) of Title 11 of the United StatesCode to include Puerto Rico under the definition of a “State”, without the exclusion from who may be aDebtor under Chapter 9 of the Code. It shall apply to “all cases commenced under title 11 of the UnitedStates Code on or after the date of the enactment of this Act”, and to debts, claims, and liens createdbefore, on, or after such date. In effect, the Bill would give Puerto Rico’s public utilities andinstrumentalities access to Chapter 9 of the Bankruptcy Code. Puerto Rico and its agencies have anestimated debt load of $73 billion, more than all U.S. states, excluding California and New York.

The Bill was referred to the House Judiciary Committee, of which Resident CommissionerPierluisi is a member, and a hearing is scheduled for next week. The Puerto Rico government indicatedthat, while it would appeal the district court’s decision declaring that Recovery Act is unconstitutional, itwould also undertake all efforts to support the enactment of the Bill. If approved, the Bill would beeffective on the date of the enactment of the Act. According to the Resident Commissioner and hisCongressional office, the goal is to obtain approval by the summer of 2015.

If you have any questions regarding the foregoing developments, please feel free to contact any ofthe following attorneys from our Bankruptcy and Government and Legislative Affairs Practice Groups.




This document has been prepared for information purposes only and is not intended, and should not be relied upon, as legal advice.