The First Circuit's recent opinion on the Puerto Rico
Oversight, Management, and Economic Stability Act
("PROMESA", 48 U.S.C §§ 2101-2241) outlines
initial guidelines for possible future actions against the Puerto
Rican government as a result of the Commonwealth's ongoing debt
crisis. Peaje Investments LLC v.
García–Padilla, 845 F.3d 505 (1st Cir. 2017).
Congress enacted PROMESA in June 2016 to create, among other
things, a temporary stay of debt-related litigation against the
government of Puerto Rico. The temporary stay was set to expire
automatically on February 17, 2017, but has been extended until May
1, 2017. The First Circuit permitted one creditor to move
immediately for relief from the stay, but blocked another
creditor's bid. The decision serves as a template for how
creditors may move against the Commonwealth when the PROMESA stay
expires later this spring.
In Peaje Investments LLC v. Garcia-Padilla, the First
Circuit considered the appeal of two creditors whose motions for
relief from PROMESA's stay had been denied by the District
Court of Puerto Rico without a hearing. The denied creditor, Peaje
Investments LLC ("Peaje"), argued that the stay should be
lifted so it could challenge the government's diversion of toll
revenues. The successful creditors, the Altair movants, similarly
sought relief based on their interest in certain employee
contributions diverted by the Commonwealth. The First Circuit
applied the Bankruptcy Code's "lack of adequate
protection" standard to determine cause for lifting the
In Peaje's case, the creditor alleged that a bond resolution
required the government to deposit toll revenues with a fiscal
agent to serve as collateral for bonds issued by the Puerto Rico
Highways and Transportation Authority. The First Circuit affirmed
the District Court's denial of Peaje's motion because
"toll revenues are 'constantly replenished,'"
allowing Peaje's security interest to continue as a
"stable, recurring source of income that will eventually
provide funds for the repayment" of the bonds.1
The Altair movants similarly alleged that the Commonwealth had
suspended transfers of employee retirement contributions, which
served as collateral for their bonds, to the required fiscal agent.
The Altair movants, crucially, included in their filings a
statement by the Commonwealth's Employees Retirement System
that "uncertainty about future employee contributions could
affect" repayment of the bonds held by the Altair movants. The
District Court characterized these contributions as "a
perpetual revenue stream whose value is not decreased by the
Commonwealth's acts," much like Peaje's collateral,
but the First Circuit reversed course. It found that the Altair
movants deserved a hearing to demonstrate the "alleged
uncertainty" of the Commonwealth's ability to repay the
The stay will expire in May, at which point an influx of actions
against the government of Puerto Rico relating to the debt crisis
is expected. The First Circuit's decision is limited in scope
due to the PROMESA stay's anticipated expiration, but creditors
pursuing litigation against the government after the stay is lifted
may choose to heed the opinion's underlying guidance: do not
hold back in initial pleadings.
In late 2016, the majority of the 3rd Panel of the Brazilian Superior Court of Justice decided that a claim for attorney's fees awarded against debtor after it has petitioned for judicial reorganization must also be deemed a pre-petition claim.
On February 03, 2016, it was granted the processing of the judicial reorganization of the following companies from EISA Group ("EISA Group") in Brazilian Courts: EISA - Estaleiro S/A e EISA Petro-um S/A.
With the Brazilian economy in difficult times, customers and suppliers have reason to be concerned about the future performance by one or another business partner in Brazil.
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