Sobrino Vega criticizes the Board for suing suppliers
According to Sobrino Vega, the move of the Special Claims Committee has caused a disruption in the business environment and complicates the debt restructuring process
(PR — Mayo 08, 2019)
The executive director of the Fiscal Agency and Financial Advisory Authority (FAFAA) Christian Sobrino Vega yesterday criticized the decision of the Board´s Special Claims Committee (SCC) to sue hundreds of suppliers and government bondholders since he thinks such action has affected the business environment on the island.
“To be clear, I don’t agree with some of those approaches and in some of the actions against companies and entities … I think it’s not responsible to say: ‘We sue you, but if it is a mistake, do not worry that I´ll fix it ‘”, said the government representative before the Board.
Sobrino Vega indicated that “the impact of a lawsuit in federal court by an entity like the Board has an effect on that operation or that business or that person.”
According to several interviews by El Nuevo Día, since last week hundreds of local businesses, multinational companies and individuals in Puerto Rico and abroad go from rage to consternation, after the SCC -the committee that investigated the government´s financial collapse- sued government supplier seeking to claw back over $ 1 billion in payments made by the government up to four years before PROMESA Title III petition.
To that end, the SCC sued or negotiated confidential agreements to reach an understanding on the alleged illegal payments that suppliers would have received. The lawsuits seek to recover payments made to government suppliers, to claim alleged fraudulent payments -since there was no formal contract between the government and suppliers-, or to recover the payment of the principal and interests that the government would have paid to bondholders on over a dozen bond issuances allegedly issued against the Constitution.
Sobrino Vega assured that he doesn´t know of any precedent in bankruptcy proceedings, not even countries that have repudiated their debt, in which the debtor seeks to recover money from bondholders.
This week, the Board´s Executive Director Natalie Jaresko said that the SCC fulfilled its fiduciary duty by filing sues against third parties provided by the Bankruptcy Code and PROMESA and that this had to be done before the end of the two-year statute of limitations. In the case of the central government, that period expired on May 2.
Jaresko said that lawsuits did not affect small businesses in Puerto Rico, that the SCC– along with the Unsecured Creditors Committee (UCC) – filed lawsuits companies and individuals who received more than $ 2.5 million during the recovery period and that everyone – including entities facing allegations of unjust enrichment and that contributed to the island´s insolvency – was given the opportunity to reach an agreement to extend the period.
While the names of suppliers and individuals became public, banks, law firms, accountants or advisors who may have contributedto the island´s collapse and who signed the extension will remain confidential, Jaresko said.
“When you look at the list of people who were sued, it includes special education centers, community health centers, non-profit organizations. They did not only sued banks, pharmaceuticals that sell products under the federal 330 program causing that interruption to see if you were correct or not. There is a fiduciary duty, but there is also a duty to do things right,” said Sobrino Vega.
Sobrino also said that considering that this (Title III) was filed in May 2017, “I would not have had only two months to find out, I would have done the work of understanding the whole, whether those payments were (adequate) or not, earlier to make sure that I am not causing an unnecessary interruption or adverse effect to a business that received a legitimate payment,” he added.
The adjustment plan
When asked about the possibility of presenting and achieving an adjustment plan for the central government in light of the lawsuits filed by the SCC, Sobrino Vega answered that, without a doubt, the legal actions by the SCC, including those against all the investment banks in the municipal market, “complicate the situation.”
Jaresko said last Monday that the central government’s adjustment plan could be filed this month, or as soon as possible.
For Sobrino Vega, they would be able to file the plan this year or the next one, but it would take the government between a year and a half to two years to get out of PROMESA Title III.
As part of that exercise, both the Board and the government said that part of the cash in public accounts -over $ 12 billion- could be used to cover pensions, pay claims and bondholders, but noted that such distribution has not yet been made.
Sobrino Vega said that Proskauer Rose and O’Melveny Myers – government attorneys – are preparing the plan.