Bankruptcy Law News

Puerto Rico’s Creditors Get Permission to Probe for Lawsuits

Dec. 17, 2018, 5:45 PM

Unsecured creditors in the bankruptcy-like insolvency proceedings of Puerto Rico and several of its agencies may collect documents from the government to explore whether they can bring lawsuits to recover more property for distribution, a federal judge ruled.

U.S. Magistrate Judge Judith Gail Dein of the U.S. District Court for the District of Puerto Rico issued an order Dec. 14 granting the motion of the Official Committee of Unsecured Creditors to conduct the discovery. A hearing on the motion had been scheduled for Dec. 19.

After Puerto Rico began the largest municipal debt restructuring in U.S. history in May 2017, the committee sought permission to investigate financial transactions that may have contributed to the territory’s financial crisis.

The court denied that motion, and a subsequent similar motion brought in April 2018, deferring to the debtors to conduct the investigation through a special investigator appointed in the case.

The investigator issued its report Aug. 20, but the committee found it “woefully deficient,” saying it failed even to identify possible claims. The committee renewed its discovery request Nov. 27, saying that it was urgent because of approaching deadlines for filing actions to recover possible fraudulent or preferential transfers.

The court’s order authorizes the committee to review documents and lists related to transactions of at least $3 million for the two-year period before the insolvency cases were filed in May 2017.

The order doesn’t prevent any party from objecting to a document request.

Paul Hastings LLP represents the committee. The Commonwealth of Puerto Rico is represented by Proskauer Rose LLP.

The case is In re Fin. Oversight & Mgt. Board for Puerto Rico, D.P.R., 17-03283, Order 12/14/18.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

To read more articles log in. To learn more about a subscription click here.