American, Canadian courts take up bankruptcy of railway in wake of Quebec explosion

The wreckage of a Montreal, Maine and Atlantic Railway train is pictured after an explosion in Lac-Megantic, in this file picture taken July 6, 2013. A fireball leveled the center of the picturesque lakeside town of Lac-Megantic, after the runaway freight train with 72 cars of crude oil derailed, killing about 50 people. Montreal, Maine and Atlantic Railway filed for bankruptcy on August 7, 2013.
MATHIEU BELANGER | REUTERS
The wreckage of a Montreal, Maine and Atlantic Railway train is pictured after an explosion in Lac-Megantic, in this file picture taken July 6, 2013. A fireball leveled the center of the picturesque lakeside town of Lac-Megantic, after the runaway freight train with 72 cars of crude oil derailed, killing about 50 people. Montreal, Maine and Atlantic Railway filed for bankruptcy on August 7, 2013.
Posted Aug. 08, 2013, at 11:54 a.m.
Last modified Aug. 08, 2013, at 7:12 p.m.

BANGOR, Maine — A federal bankruptcy judge Thursday afternoon approved a plan that will allow a disaster-plagued Maine-based railroad to continue operating for at least two more weeks.

U.S. Bankruptcy Judge Louis Kornreich granted motions filed by Montreal, Maine and Atlantic Railway’s attorney, Roger A. Clement, Jr., that will allow it to pay employees’ salaries and benefits using a $6 million line of credit provided by Wheeling & Lake Erie Railway Co., based in Ohio.

Kornreich set the next bankruptcy hearing for 11 a.m. Thursday, Aug. 22 at the Kennebec County Courthouse in Augusta.

Also on Thursday, a Canadian judge granted permission for Montreal, Maine and Atlantic’s sister company — Montreal, Maine and Atlantic Canada Co. — to go into bankruptcy protection, according to the Montreal Gazette, a Canadian newspaper.

An unmanned Montreal, Maine and Atlantic train hauling 72 tankers of crude oil derailed and exploded in Lac-Megantic, Quebec on July 6, destroying the center of the town. It had been parked on a main track atop a steep slope in Nantes, Quebec, about six miles away. The accident dumped several million gallons of light crude oil into nearby soil, lakes and streams. Cleanup operations and civil and criminal investigations continue.

Clement told reporters outside the Margaret Chase Smith Federal Building in Bangor, where bankruptcy court is located, that the track could be reopened through eastern Quebec in a week. Clement said the track itself has been repaired.

“The only impediment to resuming operations are the Canadian authorities,” he said. “Once their investigations are done or they are able to continue their investigations without having the track shut down, we will resume operations.”

Once the track is reopened, many of the 79 employees laid off in mid-July could be rehired, the attorney said.

He said that because of the accident, the firm’s income has been from $2 million to $1 million a month. Although Montreal, Maine and Atlantic no longer will transport crude oil, it anticipates it will be able to make up the lost income from other sources once the track is reopened, according to Clement

The attorney for the railroad also said that it is “highly likely” the railroad will be sold at the end of bankruptcy proceedings in the U.S. and Canada.

The first of many expected lawsuits, a class action claim, was filed in Canada on July 15 by several victims who claimed that negligence and inadequate tanker design caused the accident. Montreal, Maine and Atlantic Railway, Irving Oil Operations Ltd., World Fuel Services Inc. and Dakota Plains Holdings Inc. were named as defendants.

Clement said Thursday that insurance will cover up to $25 million in claims related to the accident.

Chapter 11 bankruptcy was one of the few options open to the Maine-based firm. Railroads are not allowed to file for Chapter 7 bankruptcy, which liquidates assets to pay off creditors.

Rail World Inc., Montreal, Maine and Atlantic’s parent company, purchased the Bangor and Aroostook Railroad in 2002 for $50 million as part of Bangor and Aroostook’s Chapter 11 bankruptcy proceedings, according to a previously published report.

In its bankruptcy filing, Montreal, Maine and Atlantic estimated that its debts totaled about $3.5 million prior to the accident. That figure excludes the $27.5 million Montreal, Maine and Atlantic still owes on a $35 million loan it received from the Federal Rail Administration in 2005.

Montreal, Maine and Atlantic has between 200 and 999 creditors, according to the petition for bankruptcy filed Wednesday. The railroad estimated its assets at between $50 million and $100 million and its liabilities between $1 million and $10 million.

One of those creditors is the State of Maine Revenue Services. The railroad owes $68,499 to the state, according to the bankruptcy filing.

Meanwhile, Maine Department of Transportation Commissioner David Bernhardt promised shippers who use Montreal, Maine and Atlantic continuous service regardless of what happens in bankruptcy courts.

Transportation officials hired an attorney and filed a notice for appearance seeking standing with the U.S. court as a representative of state and customer interests, Bernhardt said.

“The fact of the matter is that we need this rail. It is very important to the state,” Bernhardt said Thursday. “We are talking about something that runs from Searsport to Brownville to western Maine. If you were to look at a map you would see a lot of Maine business along that way.

“There should not be any stoppage of service,” Bernhardt added. “There might be a slowdown, less runs made by trains, but the service will continue.”

Three of Maine’s four other rail freight haulers have expressed willingness to assume Montreal, Maine and Atlantic’s workload or work with a trustee that the U.S. bankruptcy court will appoint to run Montreal, Maine and Atlantic as the bankruptcy process continues, Bernhardt said.

Transportation officials have also been in talks with their Canadian counterparts to ensure smooth operations, Bernhardt said. Exact figures on the economic value of Montreal, Maine and Atlantic’s rail line to the state economy were not available, but Montreal, Maine and Atlantic officials have said they have 200 customers in Maine, Canada and Vermont.

The four freight haulers Department of Transportation has talked to are Eastern Maine Railway-Northern Maine Railway, Maine Eastern Railroad, Pan Am Railways, and St. Lawrence and Atlantic Railroad.

Superior Court Justice Martin Castonguay in Canada criticized the Maine-based firm for its actions following the July 6 train crash in Lac-Megantic that left 47 dead, a Canadian newspaper reported on its website Thursday morning.

“Their behaviour has been lamentable since the beginning of the situation,” the judge said in Quebec Superior Court Thursday, according to the Montreal Gazette.

Le Journal de Montreal reported that the judge refused to give blanket protection to MMA’s administrators. Montreal, Maine and Atlantic employees who want to be paid may sue the administrators personally to get their money, the French-language newspaper reported.

Castonguay described the behavior of Montreal, Maine and Atlantic’s administrators as scandalous and appalling, the newspaper reported.

Kornreich did not criticize the company but did make a statement before Thursday’s hourlong proceeding formally began in Bangor.

“I want to express the profound sense of loss that we all feel because of the disaster and loss of life at Lac-Megantic,” Kornreich said.

Castonguay, the Canadian judge, ordered that the case be transferred to a court in eastern Canada, closer to where the accident occurred.

U.S. Rep. Mike Michaud said he has offered assistance to Gov. Paul LePage and the Surface Transportation Board, which will be the primary federal agency participating in the proceedings.

“Having access to rail is critical to our economy, and the ability of our businesses to ship Maine products to market must remain a priority throughout this process,” Michaud said.

BDN reporter Nick Sambides Jr. contributed to this story.

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