MONTREAL (Reuters) - A Quebec court granted bankruptcy protection on Thursday to the U.S. railway whose runaway train smashed into a tiny Quebec town, killing 47 people, but Judge Martin Castonguay called Montreal Maine & Atlantic’s behavior “deplorable” and said he was not impressed by its management.
“This decision is to prevent legal anarchy,” Quebec Superior Court Judge Castonguay told the courtroom after approving the bankruptcy protection for MMA’s Canadian unit.
MMA filed for protection in Canada and the United States on Wednesday, saying its revenues had deteriorated since the July 6 crash and it could not afford to pay its mushrooming financial obligations.
The company’s runaway crude oil train derailed in the small lakeside town of Lac-Megantic, Quebec, exploding in huge fireballs that destroyed a swathe of the town’s core. An estimated 5.6 million liters of crude oil were spilled.
The bankruptcy filing sparked anger in Lac-Megantic, where residents fear victims’ families may not get the compensation they are seeking through several class-action and individual suits against the company in U.S. and Canadian courts.
The governments of Quebec and the town of Lac-Megantic have also been demanding MMA foot the cleanup bill, which already amounts to C$7.8 million ($7.6 million). Canadian officials vowed on Thursday to make the railway pay for the damage.
Quebec Health Minister Rejean Hebert said the provincial government was seeking status in the bankruptcy case as a “privileged creditor,” which would assure it would receive payment from MMA before some other claimants.
“We are assured of having a guaranteed creditor status which allows us to come before a few other people,” Hebert told French-language RDI television. “We’re going to use all the necessary legal procedures to go out and seek what we are due, both from MMA and the insurers.”
In U.S. court documents, MMA named the U.S. government, through the Secretary of Transport’s Federal Rail Administration (FRA), as its biggest secured creditor. It owes about $27.5 million to FRA, which holds the first lien against MMA’s U.S. and Canadian real estate.
In the documents filed at the Quebec court, MMA named provincial or federal governments in Canada as “potential secured creditors” for any costs already incurred or incurred in the future for the environmental cleanup of the train crash.
“It is financially impossible to continue the operations and the provision of services without the benefit of the protection from its creditors,” MMA said in the Quebec court document.
Hebert said the Quebec government would take priority over the U.S. government with regard to claims against MMA’s Canadian unit.
Federal Transport Minister Lisa Raitt, who pledged C$60 million to help the town of Lac-Megantic rebuild, said the bankruptcy protection “does not mean that MMA is off the hook for their responsibilities to the people of Lac-Megantic”.
Daniel Larouchelle, a lawyer representing a class-action lawsuit on behalf of Lac-Megantic victims, said he thought having an arbiter oversee how MMA repaid its debts would help his case.
MMA’s Canadian petition said insurance covered liabilities up to C$25 million, far too little to cover damages. One source familiar with the matter said big operators like Canadian Pacific Railway and Canadian National Railway likely had coverage in the “hundreds of millions” of dollars.
MMA estimated the cleanup costs alone at the disaster site would exceed C$200 million.
A court hearing on U.S. bankruptcy protection for MMA was also being held in Bangor, Maine, on Thursday.
Writing and additional reporting by Louise Egan in Ottawa; Editing by Peter Galloway