Puerto Rico Rescue Bill Guided by U.S. Bankruptcy Rules

March 30, 2016 Posted by kingcade

A U.S. congressional draft bill to help rescue Puerto Rico from its economic crisis was released this week and contained elements of U.S. bankruptcy law.   The draft includes sections of the U.S. Bankruptcy Code that allow bankrupt entities under certain circumstances to force creditors to take reduced payouts.

Puerto Rico has $70 billion in debt and has an unfunded state pension liability of nearly $44 billion.  The new bill will provide Puerto Rico the tools to impose discipline over its finances, meet its obligations and restore confidence in its institutions.

The bill would also create a federal board to oversee the island’s finances, monitor its accounting and help curb spending.  It would also require Puerto Rico to make efforts to restructure debt consensually with its creditors.

If the talks failed, the island or its public entities could file for a court-supervised debt restructuring process based on key statues within U.S. bankruptcy law.  That would allow Puerto Rico to force such deals on holdout creditors.

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