Railroad files for bankruptcy after Lac-Mégantic tragedy

MONTREAL – The embattled railroad at the centre of the deadly Quebec train derailment has filed for bankruptcy protection in Canada and the U.S. amid a flurry of lawsuits and growing cleanup costs the company estimates will surpass $200 million.

The Montreal, Maine & Atlantic Railway initiated proceedings Wednesday for Chapter 11 bankruptcy protection in a U.S. court, while its sister firm in Canada presented a petition in Quebec Superior Court seeking relief from its creditors under the Companies’ Creditors Arrangement Act.

“It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as a direct result of the tragic derailment at Lac-Megantic,” Ed Burkhardt, chairman of both companies, said in a statement.

“A process under Chapter 11 and the CCAA is the best way to ensure fairness of treatment to all in these tragic circumstances.”

Documents filed in U.S. court say MMA 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.

In Canada, court documents filed under the CCAA by Montreal, Maine & Atlantic Canada Co. state it has just under $18 million in assets. The CCAA allows companies protection while they work out ways of avoiding bankruptcy.

Robert Grindrod, president of the Maine-based railway, appeared for the filing in the Montreal courtroom, where several lawyers representing a number of interests were also present. He declined to comment on the matter when approached by a reporter.

One lawyer present in the courtroom for the CCAA filing said the judge is expected to make a decision Thursday morning whether to grant the railway’s request for creditor protection.

Attorney Jeff Orenstein is a member of a legal team that presented a motion last month to file a class-action lawsuit, on behalf of two Lac-Megantic residents, against MMA, Burkhardt, Grindrod, train operator Tom Harding and other individuals and companies allegedly linked to the crash.

Orenstein said that either way he will continue his legal fight for his clients.

“We are exploring every avenue to make sure the people of Lac-Megantic do recover for their damages,” he told reporters.

“We’ll continue pushing ahead to get everyone the compensation they deserve.”

The filings come as the company faces lawsuits and enormous cleanup costs following the fiery July 6 crash that wiped out the downtown core of Lac-Megantic, set off several explosions and killed 47 people.

An unattended MMA train carrying crude oil roared into Lac-Megantic and derailed, setting off massive fireballs and destroying dozens of buildings in the community of 6,000 people. Burkhardt has blamed Harding for failing to set enough handbrakes.

The town and the Quebec government have sent legal notices to the railway, demanding that it reimburse Lac-Megantic $7.8 million in environmental mop-up costs after millions of litres of crude oil were released into the environment.

“MMA wishes to continue to work with the Quebec Ministry of the Environment, the municipality of Lac-Megantic, and other government authorities in the continuing environmental remediation and cleanup as long as is necessary, and will do everything within its capacity to achieve completion of such goal,” Burkhardt said.

Burkhardt, who had previously raised doubts publicly about whether the company could avoid bankruptcy, did not return messages left Wednesday at his office in Illinois.

He has said the railway was depending on its insurers to start cutting cheques to address the contamination. One expert in civil responsibility has questioned whether the company’s insurance would be enough to cover the huge costs and said taxpayers could be stuck with a bill in the hundreds of millions of dollars.

A spokeswoman for Lac-Megantic Mayor Colette Roy-Laroche said the municipality would not comment on Wednesday’s announcement because of ongoing legal proceedings.

Federal Transport Minister Lisa Raitt said Wednesday’s court filings don’t mean MMA is “off the hook for their responsibilities to the people of Lac-Megantic.”

She said Ottawa would work with the Quebec government to ensure the cleanup would continue. Each government has promised $60 million for emergency assistance and longer-term reconstruction help for the town.

Quebec Health Minister Rejean Hebert, who is also the minister responsible for the Lac-Megantic region, said Wednesday the province still wants to make MMA pay up.

“It is still the Quebec’s government’s intention to get the money that is owed in order to help the victims, be they citizens, storeowners or businesses,” said Hebert, who was not surprised by the announcement.

“I think the company has made a decision that strikes it as the best under the circumstances.”

MMA has also suffered financially because of disrupted service caused by the accident.

The railway indicated Wednesday that, despite the court filings, all essential rail service would continue at all stations in Maine, Vermont and Quebec, with the exception of the still-closed railroad in Lac-Megantic. It said it hoped to reopen that portion of the rail line as soon as authorities allow it.

The news release said the bankruptcy and CCAA filings “will provide the proper structure to permit the companies to serve customers, to preserve well-paying jobs, to provide for the payment of post-filing obligations, and to ensure that all creditors are treated equitably and in accordance with well-established laws.”

The union representing MMA workers in Quebec said the railway has cut nearly one-third of its workforce in the province since the derailment, or 24 of its 75 workers. The railway attributed the layoffs to the disaster’s impact on the business.

Burkhardt thanked the efforts of first responders and MMA staff and contractors who were called in to deal with the aftermath. He also saluted the government’s leadership in its response to the catastrophe and expressed his sympathy for those affected by the disaster.

“The people of Lac-Megantic have suffered a great deal over the last month,” he said.

“We are joined in sorrow, a sorrow that will remain a part of me for the rest of my life.”

– with files from Peter Rakobowchuk and Catherine Gignac in Montreal and Fannie Olivier in Ottawa

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