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Op-Ed: What does the Oversight Board’s lawsuit against Commonwealth suppliers mean?

As of May 2, 2019, the Financial Oversight and Management Board for Puerto Rico has filed 230 lawsuits against suppliers of goods and services to the Commonwealth of Puerto Rico and the Committee of Unsecured Creditors Under Title III of PROMESA.

The Oversight Board has entered into this scenario through a stipulation that allows it to control the state’s debt and recover money fraudulently paid in accordance with the provisions of the U.S. Bankruptcy Code applicable to PROMESA and state laws that protect it in case of insolvency.

This issue is of vital importance to hundreds of government suppliers. Although each case has its own particularities, the Oversight Board claims the legal actions are aimed to recover payments or property transfers that are considered fraudulent under the Bankruptcy Code and state laws.

The Oversight Board’s argument is that the government of Puerto Rico made payments or transfers while it was already insolvent, so they must be returned to the public coffers if the criteria of the law is not met. That includes contracts valid under local laws, since the funds had to be retained for the payment of the general debts guaranteed with bonds.

Every transfer of money the Commonwealth made must comply with the required documentation, such as valid contracts — and in some cases they have to be submitted to the Office of the Comptroller — as well as the proper invoicing of which the government in this lawsuit alleges not having evidence.

The fraudulent nature claimed by the Oversight Board allegedly lies in the fact that the insolvent government imposed on the supplier and creditor the responsibility that they “should have known of the inability or insolvency of the state” and that being the case, they should have declared the contracts null, so the plaintiffs have the right to recover those amounts of money.

The outcome of these proceedings is uncertain, since although the defendants received letters stating that actions will be filed against them, but that they had the option of extending the term of filing the lawsuit to evaluate the case, very few suppliers responded to that extension.

The outcome of this scenario is that soon, the defendants will be receiving notice of the formal lawsuit against them. They will then will be forced to respond to the lawsuit and defend themselves. If they have the documentation and can prove the legality of their payments, the State does not have the absolute right to recover them if the law was complied with.

If you are in this situation, it is important to gather evidence of your contracts, invoices and all documentation related to the allegation that is included in the claim to be able to defend yourself with an expert lawyer versed in bankruptcy.

Author Damaris Quiñones-Vargas is the owner of the Quiñones Vargas Law firm.

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