A ruling by Puerto Rico bankruptcy Judge Laura Taylor Swain may make challenges to the proposed Plan of Adjustment easier.
Swain ruled Wednesday morning she had the power to determine whether the Plan of Adjustment was consistent with the Puerto Rico Oversight Board’s fiscal plan for the central government. Effectively, Swain’s ruling opens another possible path for attack on the Plan of Adjustment, whether by bondholders, pensioners, the local government, or other interested parties.
The board had motioned for the court to declare it could not rule on whether its proposed Plan of Adjustment was consistent with the fiscal plan it had certified. It pointed to Section 106(e) of the Puerto Rico Oversight, Management, and Economic Stability Act, which says: “There shall be no jurisdiction in any United States district court to review challenges to the Oversight Board’s certification determinations under this act.”
Swain said the passage was significant but she pointed to PROMESA Section 314(b) (7), which says: “The court shall confirm the plan if the plan is consistent with the applicable fiscal plan certified by the Oversight Board under title II [of PROMESA].”
Swain said, “314(b) (7) must be harmonized with the rest of the statute and must not be construed in a manner that would deprive it of meaning.”
Because Swain ruled against the board’s motion, the ruling was unusual.
Swain seemed to reconcile the two passages by saying they relate to two different stages in the march to an approved Plan of Adjustment. “The Oversight Board must make, inter alia, a consistency determination before it can even propose a Plan of Adjustment.”
However, “the court, which has the sole power to confirm a Plan of Adjustment, must make a consistency determination as to the final iteration of the plan before the court can confirm it,” she said.
The board had also asked the judge to accept parties’ evidence on the issue of the Plan of Adjustment’s consistency with the fiscal plan but not consider the evidence. The board said the evidence might be considered in future appeals of the Plan of Adjustment, if courts determined it worth considering.
Swain also rejected this request since she was going to consider the consistency.
After the ruling in Wednesday’s omnibus hearing, Puerto Rico attorney John Mudd said the ruling was a “defeat” for the board and that Swain had ruled correctly.
