A Quebec Superior Court justice says he has reluctantly come to the conclusion he must allow bankruptcy protection for the embattled railway at the centre of the Lac-Mégantic rail disaster.

"This decision is to prevent anarchy," Justice Martin Castonguay told a Montreal courtroom this morning before granting an application for bankruptcy protection in Canada from the Montreal, Maine & Atlantic Railway.

MM&A initiated proceedings for Chapter 11 bankruptcy protection in a U.S. court, while its sister firm in Canada presented a petition in Quebec Superior Court.

In court documents filed Wednesday, the company said it was seeking relief from its creditors under the Companies' Creditors Arrangement Act, a request made as it faces a growing number of lawsuits, legal notices and cleanup costs MM&A has estimated will exceed $200 million.

Documents filed in a 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.

Justice Castonguay said the events in Lac-Mégantic last month were extraordinary and require an extraordinary remedy.

He said he was not impressed with the railway's application for bankruptcy protection and the way MM&A has conducted business since the disaster but, in light of the circumstances, there was no alternative but to grant the application.

The railway's insurance company also received a stay of proceedings, which means that the class action lawsuits already filed cannot go forward for the time being.

The judge said this was the best step for everyone involved right now.

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

"The people of [Lac-Mégantic] 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.

The town and the Quebec government have sent legal notices to MM&A, demanding that it reimburse Lac-Mégantic for almost $8 million in environmental mop-up costs after an estimated 5.7 million litres of crude oil were released into the environment.

An unattended MM&A train carrying crude oil roared into Lac-Mégantic and derailed on July 6, setting off massive fireballs, destroying dozens of buildings and killing 47 people.

Railworkers' union vigilant

Guy Farrell from the United Steelworkers Union, which represents the railway's Canadian employees, said his union will continue to watch the company's moves closely.

The company has already laid off workers based in Farnham, Que., citing lack of work due to the closure of the rail line that runs through Lac-Mégantic. At the end of July, when the last round of layoffs was made public, the union said 24 of the railway's 75 employees in the province had lost their jobs since the rail disaster.

At a news conference held in Montreal after the court hearing, Farrell said the union waited until today, payday, to react to the company's request for bankruptcy protection because it wanted to make sure workers received their money.

The union said its primary concern at this point is that it may not receive compensation because it is considered a privileged, not a guaranteed, creditor.

The union has filed grievances against the company on behalf of some employees. Farrell said the union considers MM&A's behaviour toward its employees in the wake of the disaster deplorable and it will do everything it can to protect the workers.

Pomerleau Ltd. named to take over cleanup

In Lac-Mégantic, the provincial minister responsible for the Eastern Townships, Réjean Hébert, announced that in light of the court's decision, the government and the municipality are handing over responsibility for the environmental cleanup of the devastated downtown core to a construction management company, Pomerleau Ltd.

Hébert said MM&A had been supervising the work until now.

He said Pomerleau will be examine existing contracts and co-ordinate the cleanup and restoration of the town, the restructuring of the railway tracks themselves and the cleanup of the Chaudière River, also contaminated by an unknown amount of spilled crude.

The government of Quebec and the town are paying Pomerleau's bill. Hébert said that because this case involves an environmental catastrophe, the province will have guaranteed creditor status under the bankruptcy protection proceedings in Canada.

"The government's intention is to avail itself of its rights, to benefit the victims first and foremost," Hébert said, "and after that, to be reimbursed for the costs of cleanup and contamination."

Hébert admits that at the end of the process, there might not be enough money in MM&A's coffers to defray all of those costs and that taxpayers could end up paying part of the bill.

"We have an obligation to do all we can to recover what we've spent, so that Quebec taxpayers aren't the only ones who end up paying the bills," he said.

With files from The Canadian Press