Lawyer: CNMI Retirement Fund Chapter 11 Filing Is Legal

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Government intends to challenge eligibility for bankruptcy

By Alexie Villegas Zotomayo

SAIPAN, CNMI (Marianas Variety, May 1, 2012) – Amid challenges to its eligibility to file for Chapter 11 bankruptcy petition, the Retirement Fund insists that it can explore this legal remedy.

"For the record we are a public corporation. We believe we are a person for purposes of Chapter 11 of the Bankruptcy Code," declared Braddock Huesman, counsel to the Fund — the debtor in the recent filing of a pension agency for bankruptcy.

Huesman declined to elaborate further on what made the Fund eligible to seek this legal remedy in federal court as he didn’t want to prejudice his client — the Fund — by sharing this legal strategy.

He, however, stated the Fund’s resolve to continue with the ongoing proceeding in the federal court. "It is our intent to stay in federal court. It is our intent not to lose the remedies that the federal court provides," he said.

With regard to the pending motion to dismiss questioning the Fund’s eligibility to file under Chapter 11 of the Bankruptcy Code, Huesman said, "The Fund and the attorneys that represent the Fund are confident that the current motion to dismiss will fail."

Lawyers to anonymous retirees contend that the Fund is not a "person that may be a debtor under Chapter 7" and only a person that may be a debtor under Chapter 7 can file a petition under Chapter 11.

[PIR editor’s note: The CNMI government has announced plans to fight the bankruptcy petition, although the Fitial administration has apparently refused to provide greater details as to what challenges it will make. The CNMI government allegedly still owes $317 million in contributions to the Fund, although the governor has expressed concerns that litigation costs will cost the already-burdened administration millions.]

For Huesman, any motions to dismiss the central government has or has indicated it is going to file, "we don’t believe those will be successful."

He said the Fund has examined the issue thoroughly prior to filing.

"But again this will be up to the courts. We cannot guarantee anything," said Huesman.

Responding to an inquiry from retiree Donna Cruz as to the reason for filing the motion authorizing Fund Administrator Richard S. Villagomez to seek relief under any chapter of the Bankruptcy Code, Huesman clarified that the Fund wasn’t intending to file under any other chapters under than Chapter 11.

He said when the Fund explored its options, Chapter 11 was the best fit.

"As far as looking into other chapters in the Bankruptcy Code, the Fund reserves all of its rights with regards to legal remedies," said Huesman.

He stressed, "There is no intent at this time to seek relief under any chapter of the Bankruptcy Code."

He, however, reiterated the Fund’s commitment to seeing through the federal court proceeding under Chapter 11.

"At this time the Fund is focused on the Chapter 11 proceedings and not necessarily with the motion to dismiss that’s pending; but with getting the process started, to come up with the plan so that we’ll be successful upon reorganization," said Huesman.

Huesman also said the Fund board had been educated on the various chapters of the Bankruptcy Code prior to their April 17 filing.

"There is only one chapter, one remedy that the board was looking at… We were only looking at Chapter 11," said Huesman.

Asked of the Fund’s plan should the court moves to dismiss the case on June 1, Huesman declined to comment saying that it is difficult to comment on "something hypothetical."

For Huesman, they will be looking at available remedies for the Fund.

As for the central government’s attempts at opposing the Fund’s bankruptcy filing, "The government doesn’t want to pay. The government is going to proffer whatever objection it can so it can avoid making the payments," said Huesman.

The Fund is seeking protection under Chapter 11 to allow it to restructure its obligations with the intent to continue paying the retirees’ pensions.

Under Chapter 11, Variety learned that companies’ management remains in control of the operations.

In the same chapter, the pensioners will have a voice in the negotiations through an official committee of unsecured creditors.

The U.S. trustee was provided with a list of randomly selected creditors of the Fund with the largest unsecured claims from whom the Trustee will choose 7 members to comprise the committee.

In contrast to Chapter 11, Chapter 7 is liquidation. Debtor’s nonexempt properties will be sold and proceeds will be distributed to creditors.

To be eligible for this filing, according to www.uscourts.gov, under 11 U.S.C. §§ 101(41), 109(b), the debtor may be an individual, a partnership, or a corporation or other business entity.

Chapter 9, on the other hand, allows municipalities, villages, counties, cities and towns to file for bankruptcy to seek reorganization.

Under Chapter 9, municipal utilities and school districts are eligible.

Variety learned that a total of five municipalities filed for bankruptcy under Chapter 9 last year.

Since 1937, there have been 624 municipalities that have sought protection under Chapter 9.

For family farmers or a family fisherman to seek adjustment of debts, Chapter 12 of the Bankruptcy Code is the remedy.

For wage earners seeking adjustment of debts, they may file under Chapter 13.

Under Chapter 13, debtor is allowed to retain property and pay debts over time, from three to five years.

According to U.S. courts, Chapter 13 enables individuals with regular income to develop a plan to repay all or part of their debts.

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