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In an article for Law360, Jonathan Randles looks at the US Supreme Court’s recent decision dealing a heavy blow to Puerto Rico’s restructuring laws. Puerto Rico, which is facing $70bn in public debt, passed a law in 2014 that would have restructured the debt of its financially struggling public utilities.
Law360, New York (June 13, 2016, 10:28 AM ET)—The U.S. Supreme Court refused Monday to revive a dormant law that would have allowed Puerto Rico to restructure a portion of its $70 billion debt, as the territory now looks to a proposal working its way through Congress for assistance as more defaults loom on the horizon.
The court ruled 5-2 that federal bankruptcy code preempts Puerto Rico's own restructuring law enacted by the commonwealth in 2014. Writing for the majority, Justice Clarence Thomas said a provision in Chapter 9 of the code, which is intended to keep bankruptcy laws uniform throughout the U.S., blocks Puerto Rico from enacting its Recovery Act law. "That provision bars Puerto Rico from enacting its own municipal bankruptcy scheme to restructure the debt of its insolvent public utilities companies," Justice Thomas wrote.
The ruling leaves Puerto Rico’s only viable option for restructuring its public debts with Congress. Federal lawmakers are backing legislation that would create an oversight board to control the U.S. territory's finances and debt restructuring. Dubbed the Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA, the bill is a compromise between congressional Republicans and the Obama administration. Under PROMESA, Puerto Rico could pursue a court-monitored restructuring of its publ
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