The government of Newfoundland and Labrador has quietly dropped plans to take AbitibiBowater to court to recover nearly $40 million.

The government committed that money to the workers to cover the total amount of severance owed when the mill closed at the end of March, putting about 700 people out of work.

The government said it would go to court to get some of the money back, but on Wednesday, Justice Minister Felix Collins revealed in the legislature the legal battle is off.

"There is insufficient funds," he said, "we figure there is insufficient funds with Abitibi to compensate for those claims."

AbitibiBowater is under court protection from its creditors.

Premier Danny Williams later told reporters that dropping the idea of a court case doesn't automatically mean a big writeoff.

He said the government and the company are in the middle of an international trade dispute over Williams's decision to expropriate most of AbitibiBowater's property in the province.

The expropriation will come with a purchase price, but Williams said he now plans to deduct the cost of severance and environmental cleanup from the final amount.

"So, if the possible environmental exposure and, or, the severance were X amount, and the amount that the assets were valued at were substantially less, well, then obviously there would be no payments of cash from the government," Williams said.

The negotiations between the province and AbitibiBowater are still subject to further legal challenges involving the NAFTA dispute.