Rail Company Declares Bankruptcy after Lac-Megantic Derailment

Lac-Megantic explosion

The company responsible for the Lac-Megantic derailment disaster that took 47 lives filed for bankruptcy protection Wednesday, putting into question who will be responsible for the ballooning clean up bill as well as damages for victims’ families.

The Montreal, Maine & Atlantic Railway Company filed for credit protection simultaneously in the US and Canada, arguing that the cost of the cleanup has outstripped their ability to pay.

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, Québec on July 6th, and a process under Chapter 11 and the CCAA is the best way to ensure fairness of treatment to all in these tragic circumstances,” company chairman Ed Burkhardt said in a statement. 

Furthermore, he stated that “MMA wishes to continue to work with the Québec Ministry of the Environment, the municipality of Lac-Mégantic, and other government authorities in the continuing environmental remediation and clean-up as long as is necessary, and will do everything within its capacity to achieve completion of such goal.”

Roger Clement, a US attorney for MMA told CBC’s As It Happens that bankruptcy proceedings will show that there is a “limited pot of funds available to pay claims.” The company holds a $25 million insurance fund through XL Insurance Company Limited, while court documents show the company estimates the cleanup will cost $200 million.

Credit protection law in both the US and Canada ranks debt as secured and unsecured and disburses funds in that order.

Clement says there is a special provision in US law that could give “elevated priority” to the families of the victims, so that they will get paid just after the secured creditors.

He said that the families may choose to settle out of court rather than waste limited funds on litigation.

The city and province, however, may have to wait their turn as unsecured creditors, a process Clement believes may take years. The Quebec government sent legal notices on Thursday demanding to be reimbursed for the $8 million it has already spent on cleaning up the spill.

Health Minister Réjean Hébert, who represents the area, and Federal Transport Minister Lisa Raitt both expressed their commitment to expediting the process.

The community has already received $120 million from provincial and federal governments in emergency funds.

Edward Jazlowiecki, an American lawyer who is representing several of the victims’ families in a class action lawsuit, told As It Happens that filing bankruptcy is a common tactic for companies facing these kinds of damages. From his experience representing families in accidents involving transportation companies, he has learned that putting off the payments is a way to mitigate their losses. “They always stall, stall, stall,” he said.

Although he questions the fairness of US bankruptcy laws in these situations, Jazlowiecki does see a positive side of the bankruptcy proceedings; the process will expose the company’s financial inner workings. He called MMA a “small cog” in the much larger Rail World Group, which has assets all over North America and as far away as Estonia.

“In a way, they're going to have to show their hand, they're going to have to put all their assets on the table,” he said.

Getting companies to take responsibility for damages in accidents has always presented a challenge. Greenpeace has long been calling on General Electric, Toshiba and Hitachi to take responsibility for their part of the $250 million cost of the meltdown of the Fukushima Daiichi Nuclear plant in March 2011.

General Electric, Hitachi and Toshiba designed, built and serviced the reactors which directly contributed to the Fukushima nuclear disaster, yet these companies have not paid one cent of the cost for the reactor failures,” they say.

The Transportation Safety Board wrapped up its onsite investigation of the Lac-Megantic on August 1st, 26 days after the incident. Federal officials are still investigating the composition of the oil that was in the tankers themselves, but it is estimated that 5.7 million litres of crude oil had spilled into the air, water and soil around Lac-Megantic. 

Image Credit: thierry Ehrman via Flickr