October 11, 2013

Creditor sues for payment priority in Maine railroad’s bankruptcy

The company seeks to reclaim $6 million in a court case forced by the train crash in Quebec that killed 47 people.

By J. Craig Anderson canderson@pressherald.com
Staff Writer

The Wheeling & Lake Erie Railway has filed a lawsuit to settle the issue of whether the bankrupt Montreal, Maine & Atlantic Railway’s insurance claims should be used to pay off a $6 million debt to Wheeling.

click image to enlarge

A crew from Montreal, Maine & Atlantic Railway works to put a derailed locomotive back on the tracks in Brownville in July. A creditor has sued the railroad over its $6 million debt.

2013 Press Herald File Photo / Tom Bell

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In the lawsuit, Ohio-based Wheeling asks U.S. Bankruptcy Judge Louis Kornreich to settle a dispute between it and Montreal, Maine & Atlantic’s government-appointed trustee, Robert Keach, over the validity and priority of Wheeling’s claim to the proceeds from business-interruption insurance and other policies. Wheeling also is seeking payment of its legal fees.

The lawsuit was filed Tuesday in U.S. Bankruptcy Court in Maine as part of Montreal, Maine & Atlantic’s Chapter 11 bankruptcy case. Wheeling argues that it should have a first-priority claim to all of the bankrupt railroad’s inventory, accounts receivable and insurance payouts.

The Hermon-based Montreal, Maine & Atlantic and its affiliated company in Canada filed for bankruptcy Aug. 7, a month after one of its trains carrying 72 cars of crude oil rolled downhill into the town of Lac-Megantic, Quebec, derailed and exploded, killing 47 people and destroying 40 buildings in the heart of town.

According to documents filed in bankruptcy court, the railway company is worth $50 million to $100 million and owes about $37 million to its largest creditors. In all, the company estimates that it has more than 200 unsecured creditors, which are businesses or individuals who are owed money but do not have collateral or legal means to force repayment.

The Federal Railroad Administration is the largest secured creditor and is entitled to $28 million worth of the railroad’s real estate assets and all shares of its Canadian company, Montreal, Maine & Atlantic Canada Co. However, the administration has agreed to forgo $5 million of that debt to pay for the railroad’s bankruptcy case.

The Wheeling & Lake Erie Railway is Montreal, Maine & Atlantic’s second-largest secured creditor. It is owed $6 million for a line of credit it issued to the company in June 2009 and is to be repaid from non-real-estate-related assets.

Secured creditors hold priority claims and are paid before unsecured creditors in bankruptcy cases.

In addition to the creditors, there are 19 pending lawsuits by victims of the derailment, their families and others. Judgments in those cases are expected to total in the hundreds of millions of dollars.

U.S. bankruptcy law dictates that victims and their families who win civil judgments from train-related accidents have higher priority than unsecured creditors in a railroad bankruptcy, but lower priority than secured creditors.

That means only secured creditors can be compensated before those civil claims are settled and paid out to the extent possible.

J. Craig Anderson can be contacted at 791-6390 or at:

canderson@pressherald.com

Twitter: @JCraigAnderson

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