The rail company involved in the train disaster in Lac-Mégantic, Que., last month has filed for bankruptcy protection in both Canada and the United States.

The Montreal, Maine & Atlantic Railway filed for protection from its creditors in a U.S. federal court in Maine on Wednesday.

Simultaneously, legal representatives for the company's Canadian arm,  Montreal, Maine & Atlantic Canada Co., appeared in Quebec Superior Court in Montreal, filing for similar protection in Canada.

The move comes one month and a day after a runaway MM&A train carrying crude oil derailed and then exploded, killing at least 47 people.

Mounting lawsuits, cleanup costs outweigh assets

Faced with enormous cleanup costs and mounting lawsuits, the company said in a statement Wednesday afternoon that it does not have the means to pay those bills.

"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-Mégantic, Que., on July 6," MM&A chairman Edward Burkhardt said in the statement.

 

'The people of Lac-Mégantic have suffered a great deal over the last month. We are joined in sorrow, a sorrow that will remain a part of me for the rest of my life,'—MM&A Chairman Ed Burkhardt

Burkhardt said that the railway wishes to continue to work with municipal and provincial authorities "on environmental remediation and cleanup as long as is necessary, and will do everything within its capacity to achieve completion of such goal."

The company also said it will continue to provide essential rail services at all its stations in Quebec, Maine and Vermont, with the exception of Lac-Mégantic itself. It said it intends to restore service to industries in the devastated town as soon as authorities give the railway the go-ahead to resume operations "to the level they consider appropriate."

Bankruptcy filing 'no impediment' to lawsuits, families' lawyer says

In the documents filed both in Maine and in Quebec Superior Court, MM&A has asked the court to suspend any proceedings against it, including the class action lawsuits that have been filed both in the U.S. and in Canada.

Montreal lawyer Jeff Orenstein, who is representing survivors of the Lac-Mégantic disaster in a Quebec class action suit, said the company is essentially seeking to buy time to reorganize, "to see what they can do to satisfy their debts."

"It's not going to suspend our actions," Orenstein said outside the Montreal courthouse. "We will still be going forward to get justice for everyone who was injured from the train derailment."

Edward Jazlowiecki, a U.S. lawyer representing a number of Lac-Mégantic families in a separate class action lawsuit, told CBC Radio's As It Happens that he is "not at all" worried about getting compensation for families.

"MMA is just a small cog in the wheel," he said from Forestville, Conn. "The parent company, Rail World Group, has assets all over the country. They've got assets in Estonia, Poland, Latvia, Ukraine.

"They're all over the place, it's a huge, huge conglomerate."

He said there are 11 defendants, including oil companies, and the lawsuit will proceed.

"It's not going to be an impediment at all," he said of the bankruptcy filing.

Jazlowiecki said the bankruptcy process may cause a delay, but he thinks the process will also offer up valuable information.

"In a way, they're going to have to show their hand, they're going to have to put all their assets on the table," he said.

MM&A lawyer: Sorting out liabilities could take years

A U.S. lawyer for MM&A in Portland, Maine, Roger Clement, said the court proceedings will quickly make it clear that "there is a pretty limited pot of funds available to pay claims."

 

'Today's announcement does not mean that MM&A is off the hook for their responsibilities to the people of Lac-Mégantic,'—Federal Transport Minister Lisa Raitt

"The bankruptcy cases have been filed not as any effort to run away from liabilities, but in an effort to embrace them," Clement said, though he admitted the process of sorting out those liabilities could be "measured in years, not months."

It may soon become apparent that it makes more sense to settle some of those claims out of court, "rather than chew up limited resources on protracted litigation," he said.

Clement said families of victims of the rail disaster would, under special provisions of the U.S. Bankruptcy Code, have "an elevated level of priority" among creditors, right behind secured creditors, should the bankruptcy filing be approved.

However, the same is not true for the provincial government or the town of Lac-Mégantic itself, which dug deep into its coffers to pay nearly $8 million to cover the first few weeks of cleanup costs, after work crews threatened to walk off the job over fears MM&A wouldn't pay them.

"I'm not aware that a claim for environmental cleanup would have any priority on the assets of the company," Clement said.

The Quebec government insists it will do everything in its power to recover cleanup costs from MM&A.

"We registered today as a guaranteed creditor in order to get back the money … expensed in Lac-Mégantic," said Health Minister Réjean Hébert, who is responsible for the Eastern Townships.

"We will use all the legal procedures

[at our disposal] to get back the money from the company and from the insurers also."

Hébert's comments were echoed by Federal Transport Minister Lisa Raitt, who said in a statement today's development "does not mean that MM&A is off the hook for their responsibilities to the people of Lac-Mégantic."    

MM&A has only $25M in insurance

Any suggestion that MM&A's insurance might come close to covering those mounting cleanup costs was put to rest by the figures buried in court documents.

They indicate the company has a policy with XL Insurance Company Ltd. for $25 million US, to cover evacuation, fire suppression, pollution cleanup, bodily injury and property damage.

The same documents, filed in Quebec Superior Court, show by the company's own estimate "pollutant cleanup costs will exceed $200 million CDN."

 

MM&A petition filed in Quebec Superior Court, August 7, 2013:

MM&A petition filed in US Bankruptcy Court, Aug. 7, 2013: