48 U.S.C. § 2194: Automatic stay upon enactment

Summary

Creates an automatic pause (a stay) on many legal and collection actions against the Government of Puerto Rico tied to debt issued before June 30, 2016. Liability = a bond, loan, letter of credit, insurance obligation, or other borrowed-money debt. Liability Claim = a right to be paid on such a Liability or to seek a court-ordered remedy that would lead to payment. The pause stops new or ongoing lawsuits, enforcing judgments, taking or controlling government property, creating or enforcing liens, collecting old claims, and setoffs. It does not block the continuation of proceedings that started on or before December 18, 2015, or actions by government units enforcing police or regulatory powers (including non-money judgments). The pause lasts until the earlier of: (a) a date that is the later of February 15, 2017 or six months after the Oversight Board is set up, which can be extended by 75 days if the Oversight Board certifies it needs more time or by 60 days if the district court finds more time is needed; or (b) the date Puerto Rico or one of its instrumentalities files a case under subchapter III. The U.S. District Court for Puerto Rico has original and exclusive authority over disputes about the stay. A party can ask that court for relief from the pause; after a request, the stay ends for that party after 45 days unless the court, after notice and a hearing, keeps it in place. The court can also grant emergency relief without notice to prevent irreparable harm. Acts taken in violation of the pause are void, and violators may owe damages, costs, and attorneys’ fees. While the pause is in effect, contract remedies tied only to insolvency, the Oversight Board, or related defaults cannot be used, counterparties generally must keep performing, and Puerto Rico may still make payments when due. Holders of Liability Claims may still vote on voluntary debt agreements under subchapter VI.

Title 48, §2194

Territories and Insular Possessions, Source: USLM XML via OLRC

(a)Definitions

In this section: (1) Liability

(2)Liability Claim

The term “Liability Claim” means, as it relates to a Liability—

(A)right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B)right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

(b)In general

Except as provided in subsection (c) of this section, the establishment of an Oversight Board for Puerto Rico (i.e., the enactment of this chapter) in accordance with section 2121 of this title operates with respect to a Liability as a stay, applicable to all entities (as such term is defined in section 101 of title 11), of— (1)

(2)the enforcement, against the Government of Puerto Rico or against property of the Government of Puerto Rico, of a judgment obtained before the enactment of this chapter;

(3)any act to obtain possession of property of the Government of Puerto Rico or of property from the Government of Puerto Rico or to exercise control over property of the Government of Puerto Rico;

(4)any act to create, perfect, or enforce any lien against property of the Government of Puerto Rico;

(5)any act to create, perfect, or enforce against property of the Government of Puerto Rico any lien to the extent that such lien secures a Liability Claim that arose before the enactment of this chapter;

(6)any act to collect, assess, or recover a Liability Claim against the Government of Puerto Rico that arose before the enactment of this chapter; and

(7)the setoff of any debt owing to the Government of Puerto Rico that arose before the enactment of this chapter against any Liability Claim against the Government of Puerto Rico.

(c)Stay not operable

The establishment of an Oversight Board for Puerto Rico in accordance with section 2121 of this title does not operate as a stay—

(1)solely under subsection (b)(1) of this section, of the continuation of, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the Government of Puerto Rico that was commenced on or before December 18, 2015; or

(2)of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit’s or organization’s police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit’s or organization’s police or regulatory power.

(d)Continuation of stay

Except as provided in subsections (e), (f), and (g) the stay under subsection (b) continues until the earlier of— (1)

(2)with respect to the government of the Commonwealth of Puerto Rico or any of its territorial instrumentalities, the date on which a case is filed by or on behalf of the government of the Commonwealth of Puerto Rico or any of its territorial instrumentalities, as applicable, under subchapter III.

(e)Jurisdiction, relief from stay

(1)The United States District Court for the District of Puerto Rico shall have original and exclusive jurisdiction of any civil actions arising under or related to this section.

(2)On motion of or action filed by a party in interest and after notice and a hearing, the United States District Court for the District of Puerto Rico, for cause shown, shall grant relief from the stay provided under subsection (b) of this section.

(f)Termination of stay; hearing

Forty-five days after a request under subsection (e)(2) for relief from the stay of any act against property of the Government of Puerto Rico under subsection (b), such stay is terminated with respect to the party in interest making such request, unless the court, after notice and a hearing, orders such stay continued in effect pending the conclusion of, or as a result of, a final hearing and determination under subsection (e)(2). A hearing under this subsection may be a preliminary hearing, or may be consolidated with the final hearing under subsection (e)(2). The court shall order such stay continued in effect pending the conclusion of the final hearing under subsection (e)(2) if there is a reasonable likelihood that the party opposing relief from such stay will prevail at the conclusion of such final hearing. If the hearing under this subsection is a preliminary hearing, then such final hearing shall be concluded not later than thirty days after the conclusion of such preliminary hearing, unless the thirty-day period is extended with the consent of the parties in interest or for a specific time which the court finds is required by compelling circumstances.

(g)Relief to prevent irreparable damage

Upon request of a party in interest, the court, with or without a hearing, shall grant such relief from the stay provided under subsection (b) as is necessary to prevent irreparable damage to the interest of an entity in property, if such interest will suffer such damage before there is an opportunity for notice and a hearing under subsection (e) or (f).

(h)Act in violation of stay is void

Any order, judgment, or decree entered in violation of this section and any act taken in violation of this section is void, and shall have no force or effect, and any person found to violate this section may be liable for damages, costs, and attorneys’ fees incurred in defending any action taken in violation of this section, and the Oversight Board or the Government of Puerto Rico may seek an order from the court enforcing the provisions of this section.

(i)Government of Puerto Rico

For purposes of this section, the term “Government of Puerto Rico”, in addition to the definition set forth in section 2104(11) of this title, shall include—

(1)the individuals, including elected and appointed officials, directors, officers of and employees acting in their official capacity on behalf of the Government of Puerto Rico; and

(2)the Oversight Board, including the directors and officers of and employees acting in their official capacity on behalf of the Oversight Board.

(j)No default under existing contracts

(1)Notwithstanding any contractual provision or applicable law to the contrary and so long as a stay under this section is in effect, the holder of a Liability Claim or any other claim (as such term is defined in section 101 of title 11) may not exercise or continue to exercise any remedy under a contract or applicable law in respect to the Government of Puerto Rico or any of its property—

(A)that is conditioned upon the financial condition of, or the commencement of a restructuring, insolvency, bankruptcy, or other proceeding (or a similar or analogous process) by, the Government of Puerto Rico, including a default or an event of default thereunder; or

(B)with respect to Liability Claims—

(i)for the non-payment of principal or interest; or

(ii)for the breach of any condition or covenant.

(2)The term “remedy” as used in paragraph (1) shall be interpreted broadly, and shall include any right existing in law or contract, including any right to—

(A)setoff;

(B)apply or appropriate funds;

(C)seek the appointment of a custodian (as such term is defined in section 101(11) of title 11);

(D)seek to raise rates; or

(E)exercise control over property of the Government of Puerto Rico.

(3)Notwithstanding any contractual provision or applicable law to the contrary and so long as a stay under this section is in effect, a contract to which the Government of Puerto Rico is a party may not be terminated or modified, and any right or obligation under such contract may not be terminated or modified, solely because of a provision in such contract is conditioned on—

(A)the insolvency or financial condition of the Government of Puerto Rico at any time prior to the enactment of this chapter;

(B)the adoption of a resolution or establishment of an Oversight Board pursuant to section 2121 of this title; or

(C)a default under a separate contract that is due to, triggered by, or a result of the occurrence of the events or matters in paragraph (1)(B).

(4)Notwithstanding any contractual provision to the contrary and so long as a stay under this section is in effect, a counterparty to a contract with the Government of Puerto Rico for the provision of goods and services shall, unless the Government of Puerto Rico agrees to the contrary in writing, continue to perform all obligations under, and comply with the terms of, such contract, provided that the Government of Puerto Rico is not in default under such contract other than as a result of a condition specified in paragraph (3).

(k)Effect

This section does not discharge an obligation of the Government of Puerto Rico or release, invalidate, or impair any security interest or lien securing such obligation. This section does not impair or affect the implementation of any restructuring support agreement executed by the Government of Puerto Rico to be implemented pursuant to Puerto Rico law specifically enacted for that purpose prior to the enactment of this chapter or the obligation of the Government of Puerto Rico to proceed in good faith as set forth in any such agreement.

(l)Payments on Liabilities

Nothing in this section shall be construed to prohibit the Government of Puerto Rico from making any payment on any Liability when such payment becomes due during the term of the stay, and to the extent the Oversight Board, in its sole discretion, determines it is feasible, the Government of Puerto Rico shall make interest payments on outstanding indebtedness when such payments become due during the length of the stay.

(m)Findings

Congress finds the following:

(1)A combination of severe economic decline, and, at times, accumulated operating deficits, lack of financial transparency, management inefficiencies, and excessive borrowing has created a fiscal emergency in Puerto Rico.

(2)As a result of its fiscal emergency, the Government of Puerto Rico has been unable to provide its citizens with effective services.

(3)The current fiscal emergency has also affected the long-term economic stability of Puerto Rico by contributing to the accelerated outmigration of residents and businesses.

(4)A comprehensive approach to fiscal, management, and structural problems and adjustments that exempts no part of the Government of Puerto Rico is necessary, involving independent oversight and a Federal statutory authority for the Government of Puerto Rico to restructure debts in a fair and orderly process.

(5)Additionally, an immediate—but temporary—stay is essential to stabilize the region for the purposes of resolving this territorial crisis.

(A)The stay advances the best interests common to all stakeholders, including but not limited to a functioning independent Oversight Board created pursuant to this chapter to determine whether to appear or intervene on behalf of the Government of Puerto Rico in any litigation that may have been commenced prior to the effectiveness or upon expiration of the stay.

(B)The stay is limited in nature and narrowly tailored to achieve the purposes of this chapter, including to ensure all creditors have a fair opportunity to consensually renegotiate terms of repayment based on accurate financial information that is reviewed by an independent authority or, at a minimum, receive a recovery from the Government of Puerto Rico equal to their best possible outcome absent the provisions of this chapter.

(6)Finally, the ability of the Government of Puerto Rico to obtain funds from capital markets in the future will be severely diminished without congressional action to restore its financial accountability and stability.

(n)Purposes

The purposes of this section are to—

(1)provide the Government of Puerto Rico with the resources and the tools it needs to address an immediate existing and imminent crisis;

(2)allow the Government of Puerto Rico a limited period of time during which it can focus its resources on negotiating a voluntary resolution with its creditors instead of defending numerous, costly creditor lawsuits;

(3)provide an oversight mechanism to assist the Government of Puerto Rico in reforming its fiscal governance and support the implementation of potential debt restructuring;

(4)make available a Federal restructuring authority, if necessary, to allow for an orderly adjustment of all of the Government of Puerto Rico’s liabilities; and

(5)benefit the lives of 3.5 million American citizens living in Puerto Rico by encouraging the Government of Puerto Rico to resolve its longstanding fiscal governance issues and return to economic growth.

(o)Voting on voluntary agreements not stayed

Notwithstanding any provision in this section to the contrary, nothing in this section shall prevent the holder of a Liability Claim from voting on or consenting to a proposed modification of such Liability Claim under subchapter VI of this chapter.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The enactment of this chapter, referred to in text, means the enactment of Pub. L. 114–187, which was approved

June 30, 2016. This chapter, referred to in subsec. (m)(5), was in the original “this Act”, meaning Pub. L. 114–187,

June 30, 2016, 130 Stat. 549, known as the Puerto Rico Oversight, Management, and Economic Stability Act and also as PROMESA, which is classified principally to this chapter. For complete classification of this Act to the Code, see

Short Title

note set out under section 2101 of this title and Tables.

§2194 Automatic Stay Upon Enactment