MONTREAL – Canadian Pacific Railway has been ordered by a federal agency to resume the transfer of cargo traffic to Montreal Maine and Atlantic Railway.
Calgary-based CP had expressed concerns about the “fitness” of the insolvent short-haul railroad to safely handle hazardous substances in light of the deadly derailment and crash last month that devastated Lac-Megantic, Que.
But MM&A told the Canadian Transport Agency that it was suffering it irreparable financial harm by CP’s boycott and the CTA issued an order late Wednesday that overrides Canadian Pacific’s decision.
Canadian Pacific’s (TSX:CP) says it is reviewing its legal options.
“While we disagree with this order, we have taken immediate steps to comply,” CEO Hunter Harrison said in a news release. “The CTA, as federal regulator, has satisfied itself that MM&A is fit to operate and has adequate insurance to do so.”
The rail tankers that derailed in Lac-Megantic — causing a fire that killed 47 deaths, displaced thousands and destroyed the city’s core — were carrying crude oil that originated in the U.S. Midwest and carried part of their journey by CP.
MM&A is a short-haul railway that was hired to move the tankers on one leg of a journey between the U.S. Midwest and an Irving refinery in New Brunswick.
CP Rail issued an embargo after the agency withdrew MM&A’s certificate of fitness, which suspended its ability to operate. The transportation agency agreed to reinstate the certificate three days later, allowing MM&A to continue to operate until Oct. 1, providing it proves holding adequate insurance.
Canadian National Railway (TSX:CNR) had initially also cut off Montreal Maine & Atlantic from receiving interchange traffic but voluntarily resumed the practice.
A Quebec court overseeing MM&A’s creditor protection case is convening Friday morning to decide whether to provide the insurance guarantees that would allow the railway to meet the agency’s requirements to regain its operating licence.
Gilles Robillard of the court-appointed monitor Richter Advisory Group urged the Quebec Superior Court judge to approve the request to preserve MM&A’s value, maintain employment and avoid economic losses from cutting service to the railway’s customers.
“Absent a continuation of its operations, MM&A may determine that the ultimate goal sought by the filing under the CCAA (Companies’ Creditors Arrangement Act) is no longer achievable and may decide to file for bankruptcy,” he wrote in Richter’s first report.
The railway obtained creditor protection in Canada and bankruptcy protection in the United States to give it time and ensure an orderly process to seek a buyer.
J.D. Irving, the parent company of NB Southern Railway, said this week it is reviewing all of its options, including a potential bid to purchase the insolvent MM&A railway.
According to court documents, Montreal, Maine & Atlantic Canada owes about $48 million to 128 unsecured creditors, including $43.4 million to its parent company and $2.35 million to NB Southern.
Montreal, Maine & Atlantic Canada and its parent company operate more than 800 kilometres of track in Quebec, Vermont and Maine.
Richter said the railway will be forced to lay off all of its Canadian employees and put the payment of accrued vacation in jeopardy if it can’t obtain the court’s approval need to obtain the required operating licence.
The railway has 62 employees, including 34 active workers, according to the court filing. The active workers are owed about $97,000 in accrued pay due Sept. 6, plus $440,000 in accrued vacation pay to all employees, according to the filing.
“The cash flow will not permit the payment of these amounts in the event of an immediate cessation of operations.”
MM&A originated or delivered more than 10,000 rail cars from and to about 60 customers in Quebec in the 12 months ended June 30.
Meanwhile, the Quebec government announced Thursday that it is seeking a role in the U.S. bankruptcy court handing the MM&A case.
Quebec justice minister Bertrand St-Arnaud said the provincial government is seeking to ensure there’s compensation for those affected by the derailment
He said the government also wants to ensure that Quebec taxpayers don’t bear the costs of decontamination and rebuilding.
“The Quebec government intends to take the best steps to get the maximum from those responsible for this tragedy,” St-Arnaud said in a news release.
“All our actions are directed towards the ultimate benefit of victims. The team of lawyers dedicated to this task has been working for the first few hours after the tragedy of Lac-Megantic to ensure that the rights of victims and the people of Quebec are protected.”
The government has appointed a Quebec bankruptcy specialist with standing in New York State to make representations on behalf of an informal creditors’ committee, which represents the province, the municipality and members of a class-action lawsuit.
Luc Despins of the firm Paul Hastings will ask the court and the U.S. Trustee Office to officially recognize the creditors’ committee.
The province has also issued a legal demand to MM&A, Canadian Pacific Railway and several other companies it says are responsible for picking up the tab for mopping up from the July 6 train derailment, which killed 47 people, devastated the town core and dumped millions of litres of crude oil into the environment.
CPR has said it holds no financial responsibility for the rail disaster.