Railway involved in deadly Quebec disaster granted creditor protection

MONTREAL – The railroad involved in the fatal Lac-Megantic train derailment was granted creditor protection Thursday in a Canadian court, a decision expected to increase the value of the company’s assets and speed up its repayment of debts.

It remained unclear, however, just how much of its rapidly growing liabilities the railway will ultimately be able to pay off.

A Quebec Superior Court justice handed down the ruling after a request was made by Montreal, Maine & Atlantic Canada Co., a firm facing hundreds of millions of dollars in lawsuits, other legal claims and environmental-cleanup costs linked to the disaster.

Justice Martin Castonguay told a Montreal courtroom he hopes the decision will avoid the “judicial anarchy” of having numerous creditors simultaneously seeking cash from the insolvent railway through different legal avenues.

On July 6, an unattended MMA train loaded with crude oil roared into Lac-Megantic and derailed, setting off huge explosions, destroying much of the downtown core and killing 47 people. The crash also released millions of litres of petroleum into the environment.

In court documents filed Wednesday, the railway sought relief from its creditors under the Companies’ Creditors Arrangement Act and stated it had just under $18 million in assets and insurance coverage of $25 million. MMA’s chairman has said in interviews it has yet to receive cash from its insurer due to what he has described as technical issues.

The company, a Canadian subsidiary of the U.S.-based Montreal, Maine & Atlantic Railway Ltd., also estimated in the filing that mop-up bills alone will exceed $200 million.

Lawyers say it’s too early to know how much taxpayers will ultimately end up paying for the massive cleanup and reconstruction.

The Quebec government says it’s among the secured creditors and insists it will take necessary steps to limit the burden on the public purse, which has already been opened.

Taxpayers have been forced to shell out millions for the environmental-cleanup bill after MMA failed to pay workers it had hired for the job. The town and the Quebec government have sent legal notices to the railway, demanding it reimburse Lac-Megantic nearly $7.8 million.

The railway has faced considerable public criticism over how it has responded to the disaster and even the judge shared his own thoughts Thursday on its conduct, describing MMA’s actions since the derailment as “lamentable.”

“The court is not at all impressed with the conduct of MMA since the start,” Castonguay said without elaborating, shortly after granting the creditor protection.

Asked about the judge’s remarks, a lawyer representing MMA in Canada declined to comment about them.

But Denis St-Onge did say he was satisfied with Castonguay’s ruling, which he expected would speed up the legal process.

“We will have one single forum within which all the claims will be assessed,” said St-Onge, who expects the court decision to allow MMA to restart rail service in Lac-Megantic and maximize the value of its assets.

“MMA will no longer be the same, but the people over there, the businesses over there, I think they need a railway, either it’s MMA or it’s someone else. And in the meantime, some of them need a railway badly.”

The attorney representing Lac-Megantic was pleased that a single court will be in control of how MMA creditors will eventually be paid.

Louis Coallier, who explained it was much too early to know how the assets could be divided, called Castonguay’s decision the best remedy under the circumstances.

“Think of insolvency like a terminal illness — do we send the ailing to palliative care or leave them to die in an alley?” Coallier said.

“It’s a legal (decision), but it’s also a human decision.”

The company’s woes also made their way this week into a U.S. court, where parent firm Montreal, Maine & Atlantic Railway Ltd. initiated proceedings Wednesday for Chapter 11 bankruptcy protection.

Documents filed Wednesday in the Maine court say the parent company has between $50 million and $100 million in estimated assets and between $1 million and $10 million in estimated liabilities. The bankruptcy-court filing was posted on the website of Maine’s Bangor Daily News.

Ed Burkhardt, chairman of both firms, said in a statement Wednesday the “obligations of both companies now exceed the value of their assets, including prospective insurance recoveries.”

In Canada, Castonguay said he would like future hearings on the matter to eventually be presided over by another judge in the region of Lac-Megantic, which is about 250 kilometres east of Montreal. The next court date is scheduled for Aug. 23 in Montreal.

“The people of (Lac-Megantic) have a right to know what’s going on,” said Castonguay, adding they should not be forced to make a two-hour drive to Montreal to follow proceedings.