|August 08, 2013|
Lac Megantic: Rail company files for bankruptcy
|The railway company involved in the train crash that killed 47 people in Lac-Mégantic, Que. filed for bankruptcy Wednesday in the U.S. and made a similar move in Canada. |
The filings raise questions about the company's ability to pay its share of the cleanup costs for the disaster, and costs associated with defending itself in current and anticipated lawsuits.
In Montreal court, the Canadian arm of Montreal, Maine & Atlantic filed a petition seeking relief under the Companies' Creditors Arrangement Act, while in Maine, the company's U.S. branch filed for Chapter 11 bankruptcy protection.
In a petition submitted in U.S. court, the company listed having between $50 million and $100 million in estimated assets.
"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 6th," reads a statement by company chairman Ed Burkhardt.
The company is looking to preserve the value of its assets for sale, and honour "certain wage obligations," according to documents filed in court. MMA currently employs 85 people in the U.S. and Canada.
David Schatzker, partner at law firm Clark Farb Fiksel, which is not involved in the case, said the Canadian filing is a measure intended to keep the company afloat, at least in the short term.
"Most of the time, when these (proceedings) are commenced, the hope is that a liquidation will be avoided, and that there will be some arrangement that allows the company to continue," Schatzker said, speaking generally.
He said many factors go into determining whether a bill for the cleanup costs would take precedence over paying other creditors.
The next step will see stakeholders, such as creditors and employees, devise a plan for MMA's future, while the court makes orders designed to keep the company alive long enough to implement that plan.
A spokeswoman for Lac-Mégantic Mayor Colette Roy-Laroche said the municipality, which has already paid almost $8 million toward cleanup costs, would not comment on Wednesday's announcement because of ongoing legal proceedings.
Burkhardt said the company "will do everything within its capacity" to work with the town and provincial government during the cleanup process.
In Canada, Richter Advisory Group will serve as the company's court appointed monitor, according to a statement from the company. Richter's role will be to oversee a managed restructuring process.
Hubert Sibre, a member of the bankruptcy, insolvency and restructuring group at law firm Davis LLP which is not involved in the case, said Richter will be able to review the company's actions and won't control MMA, but will be "well-informed" of its operations.
Speaking generally, Sibre said the company will be able to keep going about its standard operations.
"But if they want to do something outside the standard operations, out of the ordinary course of business is the expression we use, they would have to have Richter's blessing, and sometimes the secured creditors'," he said.
Helping to foot the multimillion-dollar bill for the cleanup in Lac-Mégantic's demolished downtown area would probably be considered outside of standard operations, Sibre said, although he said it's too early to say for sure.
Quebec Health Minister Réjean Hébert, who is also the minister responsible for the Lac-Mégantic region, said Wednesday the province still wants to make MMA pay up.
"It is still the Quebec government's intention to get the money that is owed in order to help the victims, be they citizens, store owners or businesses," said Hébert. "I think the company has made a decision that strikes it as the best under the circumstances."
Documents filed in a U.S. court detail how, as a result of the accident, MMA's aggregate monthly gross revenues dropped to about $1 million, down from $3 million.
Until July 6, the day of the derailment, MMA had been hauling about 500,000 barrels of oil a month through Quebec and Maine toward the Irving Oil refinery in Saint John, N.B.