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Lac-Mégantic residents were appalled that MM&A’s 75-year-old chairman waited four days to tour the town’s burned-out core.The Globe and Mail

The U.S.-based railway whose train crashed in Lac-Mégantic, Que., last month has filed for creditor protection in Canada and the United States, saying it is unable to deal with mounting bills arising from the disaster.

Montreal, Maine & Atlantic Railway filed for Chapter 11 bankruptcy protection in Maine on Wednesday. Montreal, Maine & Atlantic Canada, a sister company that shares the same president and chairman, filed a petition with the Superior Court of Quebec in Montreal for protection from its creditors under the Companies' Creditors Arrangement Act.

On July 6, one of MM&A's trains rolled down a hill and jumped the tracks in downtown Lac-Mégantic, setting off a series of explosions that flattened dozens of buildings and left 47 people dead. The resulting oil spill could cost more than $200-million to clean up, according to the court documents.

The court filing sets up what is poised to be a lengthy battle over who will bear the final cleanup costs and compensate victims for the tragedy. The documents indicate that MM&A has neither the money nor the insurance coverage to pay for the environmental cleanup and pending legal claims against it, including from the families of some of those who were killed.

"It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries," MM&A chairman Edward Burkhardt said in a statement Wednesday.

Filing for bankruptcy is "the best way to ensure fairness of treatment to all in these tragic circumstances," he said.

The decision means the company will start a judge-supervised process to determine how much money will be paid to its various creditors. The process, which allows the company to tackle its unmanageable debt load and remain viable, can be lengthy and typically places secured creditors ahead of those seeking compensation through a lawsuit.

MM&A's insurance provider, XL Group, has so far declined to cover the cleanup bills, leaving the province to step in and pay more than $8-million to ensure the work continues.

The court documents indicate that XL has no plans to contribute to continuing environmental recovery costs because it has decided to prioritize claims from victims affected by the disaster. MM&A's insurance policy with XL covers the company for up to $25-million, according to the court documents.

Because of the number of claims and the amounts being claimed, the insurer "cannot provide for payment of covered environmental cleanup costs to the detriment of the third-party claimants, especially where the amounts of the claims exceed the limit of the coverage," the documents state.

Réjean Hébert, the Quebec minister responsible for the Eastern Townships region and Minister of Health and Social Services, said the provincial government is still evaluating the cost of dealing with the environmental damage but has registered as a secured creditor and will "seek to obtain the maximum compensation possible."

"Our role is to represent the victims. We are going to recover the maximum amount in the victims' names, be they citizens, shop owners or companies," Mr. Hébert said.

Federal Transport Minister Lisa Raitt issued a statement Wednesday saying that the claim does not let the company "off the hook." The federal government continues to work with the province of Quebec to ensure the cleanup continues, she added.

MM&A's secured debt includes a $27.5-million balance owed to the U.S. government, out of a $34-million loan it received in 2005. The company's other secured debt stems from a $6-million line of credit provided by Ohio-based Wheeling & Lake Erie Railway Company.

Major unsecured creditors include two MM&A parent companies run by Mr. Burkhardt, which are claiming a total of $1-million. That includes a $785,958 indemnity to Rail World Inc. of Des Plaines, Ill., in case MM&A is hit with wrongful-death litigations.

The biggest unsecured creditor is New Brunswick Southern Railway Company Ltd., which has a disputed claim for $1.9-million. The court documents state that MM&A has between 200 and 999 creditors and expects to have funds available to distribute to unsecured creditors.

That list of creditors includes the names of 12 Lac-Mégantic residents who died in the disaster and whose relatives or estates have sued Rail World in Illinois courts.

In the bankruptcy filings, MM&A requested court orders to keep using cash to meet payroll obligations, and to keep its accounts with TD Bank, Bank of America and Bangor Savings Bank in the U.S. and the Canadian Imperial Bank of Commerce in Canada.

The company said it will continue with "essential operations" on its tracks outside of Lac-Mégantic. MM&A will also continue its efforts to resume rail services for Lac-Mégantic's industrial sector, according to the statement.

After a series of layoffs, MM&A employs 85 people in the U.S. and Canada.

Mr. Burkhardt could not immediately be reached for comment on Wednesday. His Illinois-based assistant, Cathy Aldana, said the railway chairman is not speaking to media, in part because he is obliged to be careful about what he says about the bankruptcy filings.

With reports from Tara Perkins, Sophie Cousineau, Justin Giovannetti and Tim Kiladze